Salary & Income · Section 12(7) · 13 tax years of slabs
Salary Arrears Tax Calculator
Arrears are taxed in the year they reach you, which can push them into a higher slab. Section 12(7) lets you elect to have them taxed in the year they relate to instead — this prices both outcomes.
Side by side
Both outcomes, year by year
| Option | Taxed in | Salary taxed | Tax on the arrears | Effective rate |
|---|
The election changes only where the arrears are taxed. Your ordinary salary in each year is taxed as it always was.
Step by step
How the relief is worked out
Price the default
Tax on this year's salary including the arrears, minus tax on the salary alone. That difference is what the arrears cost you now.
Price the election
Add the arrears to the earlier year's declared salary and re-run that year's slabs and surcharge. The increase there is what the election would cost.
Compare, then decide
Elect only if the earlier year is cheaper. A year in which you earned more, or which carried a surcharge, can be worse.
Make it in writing
The option is exercised by notice to the Commissioner in the prescribed manner, for the year of receipt.
Reading the result
The election is a choice, and it is not always right
Section 12(7) lets you elect to have arrears taxed in the year they relate to rather than the year they arrived. That usually helps, because a lump sum landing in one year can push income into a higher band that it would never have reached spread across the years it was earned.
Usually is not always. If your income in the earlier years was higher than it is now, moving the arrears back can cost you more. Run both and compare rather than assuming the election is automatically favourable.
You have to make it; nobody makes it for you
Employers deduct on the amount paid in the month they pay it. The election is exercised by the taxpayer in the return, so an employee who never files never gets the benefit, however clearly it would have applied.
You need the earlier years' figures
The comparison depends on what your taxable income actually was in each year the arrears relate to, and which slabs applied then. Old returns, or the employer's certificates for those years, are what make the election defensible. A rough recollection is not enough if the position is examined.
Where this stops
This compares the two treatments on the figures you supply. It does not apply credits or allowances in either year, and where arrears span several years the apportionment between them has to be right before the comparison means anything.
FAQs
Salary arrears FAQs
What counts as salary in arrears?
Pay that belongs to an earlier tax year but reaches you later — a back-dated pay revision, a promotion notified months after it took effect, withheld increments released in a lump sum, or a court or tribunal award of unpaid salary. It is not the same as a bonus or an advance: a bonus relates to the year it is declared in, and an advance relates to a year that has not happened yet.
Why does receiving arrears cost extra tax?
By default salary is taxed when it is received. Stacking two years of pay into one year pushes the top of it into higher slabs, so the arrears can attract a much higher rate than they would have in their own year. The slabs themselves may also have been kinder in the earlier year.
What does Section 12(7) let me do?
It lets the employee opt, by notice to the Commissioner, to have the arrears taxed in the tax year to which they relate rather than the year of receipt. Where the earlier year had a lower slab position or gentler rates, that is a real saving. The election is a request in writing, made in the prescribed manner — not something applied automatically by your employer.
Is the election always worth making?
No. If your income in the earlier year was higher than it is now, or that year carried a surcharge you would fall into, taxing the arrears back there can cost more. That is why both outcomes are priced side by side above — check before electing.
Which figures should I enter for the earlier year?
The taxable salary you actually declared for that year, before the arrears. The calculator adds the arrears on top of it and re-runs that year's own slabs, which is what the election does.
Does the employer handle this?
The employer deducts on what it pays in the current year, so it will normally withhold on the full amount including arrears. Relief under the election is claimed by the employee — sort it out for the year of receipt rather than discovering it afterwards.
Are allowances, credits and other income covered?
No. Enter taxable salary after exempt allowances, and treat the result as a slab comparison rather than a filing figure. Tax credits, other heads of income and any minimum tax are outside this calculation.
Related tools
Leaving a job with a severance package?
Golden handshake payments carry their own election — taxed at the average rate of the last three years.
Open Golden Handshake Calculator