Rule 73 of the Draft Income-tax Rules, 2026 lays down the method for granting relief under section 157(1) where an assessee’s income in a relevant tax year is taxed at a higher rate due to specified lump-sum receipts. The rule applies to salary received in arrears or advance, family pension in arrears, gratuity for past services, compensation on termination of employment (subject to minimum service conditions), and commutation of pension. For arrears of salary or family pension, relief is calculated as the excess of tax in the year of receipt over the aggregate additional tax that would have been payable had the income been taxed in the years to which it relates, using a four-step computation (A–B method). For gratuity, compensation and pension commutation, relief is determined by comparing the average rate of tax in the year of receipt with the average rates of preceding years after proportionately spreading the receipt (half or one-third, depending on length of service). Relief is available only where the current year’s average rate exceeds the computed average of prior years. The Board may allow relief for other receipts based on circumstances. To claim relief, the assessee must furnish Form No. 39 within the prescribed due date, and eligible salaried taxpayers may submit the form to the employer or payer for necessary adjustment.
Extract of Rule No. 73 of Draft Income-tax Rules, 2026
Rule 73
Relief under section 157(1) when salary is paid in arrears or in advance, gratuity, etc.
(1) Where, the total income of an assessee for any tax year (referred to as the relevant tax year in this rule) is assessed at a rate higher than the rate at which it would otherwise have been assessed, on account of receipts in relevant tax year as specified in column B of the Table below, relief admissible under section 157(1) shall be as specified in column C thereof,
TABLE
| Sl.No. | Receipts | Relief |
| A | B | C |
| 1. | Any portion of salary received in arrears or in advance or, any portion of family pension received in arrears (hereinafter referred to as the ‘additional salary’ or ‘additional family pension’ as the case may be) | Relief = A-B, if A exceeds B, where –
A=C-D; B=Aggregate of E; E=F-G and the computation of relief shall be carried out in the following steps. Step-1.- Where the additional salary or additional family pension relates to one or more tax years, the tax years to which the additional salary or additional family pension relates and the amount relating to each such tax year shall first be ascertained; Step 2.- Calculate A=C-D, where C = tax on total income of the relevant tax year; D= tax on total income, as reduced by the additional salary or additional family pension, as if the total income so reduced were the total income of the relevant tax year; A = tax on the additional salary or additional family pension for the Step-3.- Calculate E = F – G, where G = tax payable in respect of the total income of each tax year ascertained in Step-1; F= tax payable on the total income of such tax year as increased by the amount relating to such tax year as ascertained in step-1; as if the total income so increased were the total income of that tax year; E= tax on the additional salary or additional family pension for each tax year ascertained in Step-1; Step-4.- B = aggregate of tax on the additional salary or additional family pension. Calculate “B” to be the total of tax on the additional salary or additional family |
| 2. | Gratuity received in respect of past services extending over a period of greater than or equal to five years but less than fifteen years | Relief = G x (R1-RAvg), if R1 exceeds R
Avg; where – G = gratuity received in the relevant tax year Y1 = relevant tax year, Y2= tax year immediately preceding Y1, Y3 = tax year immediately preceding Y2; R1 = average rate of tax on the total income including gratuity amount received in Y1 R2 = average rate of tax on the total income for Y2 as increased by one-half of the gratuity received, as if the income so increased were the total income of that tax year R3= average rate of tax on the total income for Y3 as increased by one-half of the gratuity received, as if the income so increased were the total income of that tax year; RAvg = ( R2+R3)/2; |
| 3. | Gratuity received in respect of past services extending over a period of not less than fifteen years | Relief = G x (R1-RAvg), if R1 exceeds R
Avg; where – G = gratuity received in the relevant tax year Y1 = relevant tax year, Y2 = tax year immediately preceding Y1, Y3 = tax year immediately preceding Y2, Y4 = tax year immediately preceding Y3; R1 = average rate of tax on the total income including gratuity amount received in Y1 R2 = average rate of tax on the total income for Y2 as increased by one-third of the gratuity received, as if the income so increased were the total income of that tax year R3= average rate of tax on the total income for Y3 as increased by one-third of the gratuity received, as if the income so increased were the total income of that tax year; R4= average rate of tax on the total income for Y4 as increased by one-third of the gratuity received, as if the income so increased were the total income of that tax year; RAvg =( R2+R3+R4)/3; |
| 4. | Compensation received from the employer or the former employer at or in connection with the termination of employment after continuous service for not less than three years and where the unexpired portion of term of employment is also not less than three years | Relief = C x (R1-RAvg), if R1 exceeds R
Avg; where – C = compensation amount received in the relevant tax year, Y1 = relevant tax year, Y2 = tax year immediately preceding Y1, Y3 = tax year immediately preceding Y2, Y4 = tax year immediately preceding Y3; R1 = average rate of tax on the total income including compensation R2= average rate of tax on the total income for Y2 as increased by one-third of the compensation amount received, as if the income so increased were the total income of that tax year; R3= average rate of tax on the total income for Y3 as increased by one-third of the compensation amount received, as if the income so increased were the total income of that tax year; R4= average rate of tax on the total income for Y4 as increased by one-third of the compensation amount received, as if the income so increased were the total income of that tax year; RAvg =( R2+R3+R4)/3; |
| 5. | Commutation of pension received | Relief = P x (R1-RAvg), if R1 exceeds R
Avg; where – P = amount of commutation of pension Y1 = relevant tax year, Y2 = tax year immediately preceding Y1, Y3 = tax year immediately preceding Y2, Y4 = tax year immediately preceding Y3; R1 = average rate of tax on the total income including amount of commutation of pension received in Y1; R2= average rate of tax on the total income for Y2 as increased by one-third of the amount of commutation of pension received, as if the income so increased were the total income of that tax year; R3= average rate of tax on the total income for Y3 as increased by one-third of the amount of commutation of pension received, as if the income so increased were the total income of that tax year; R4= Average rate of tax on the total income for Y4 as increased by one-third of the amount of commutation of pension received, as if the income so increased were the total income of that tax year; RAvg =( R2+R3+R4)/3; |
(2) In case of any other receipts, the Board may, having regard to the circumstances of the case, allow such relief as it deems fit.
(3) To claim relief under section 157(1) of the Act, the assessee shall furnish the particulars specified in Form No. 39 on or before the due date specified under section 263(1)(c) of the Act.
(4) Where the assessee, being a Government servant or an employee in a company, cooperative society, local authority, university, institution, association or body, is entitled to relief under section 157(1), he may furnish the particulars specified in Form No. 39 to the person responsible for making the payment referred to in section 392(1).
