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Fix the driver behind crashes, sound loss and screen glitchesFind Drivers →Repair Windows errors before they cause bigger problemsFix Now →Scan for outdated or missing drivers - takes under a minuteDriver Scan →If you received money under a voluntary retirement scheme (VRS) and believe it was taxed as salary received in advance or arrears, the filing sequence for assessment year (AY) 2026–27 is: establish what each payment component represents, submit the online Form 10E, then claim the resulting Section 89 relief in the income-tax return for the same assessment year. The Income Tax Department says relief claimed in the return without the required Form 10E will be disallowed during processing. Form 10E is a procedural requirement; it does not by itself prove that every VRS package qualifies.
What Section 89 relief does in a VRS case
Section 89 is intended to reduce the extra tax burden that can arise when qualifying salary, or a similar qualifying receipt, is paid in advance or in arrears and therefore pushes income into a year at a higher rate than would have applied if it had been taxed in the year to which it relates. The department’s Form 10E material includes compensation from an employer or former employer at or in connection with termination of employment among the categories covered by the form.
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That category is relevant to some voluntary-retirement payments, but it is not a blanket approval of every VRS settlement. A package can contain several legally distinct amounts—such as compensation, salary, leave-related amounts, gratuity, provident-fund amounts or other dues—and the tax treatment can differ for each. Section 89 relief must be considered against the actual nature and timing of the receipt, not merely the fact that the employer called the package “VRS compensation.”
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For a return governed by the Income-tax Act, 1961 for AY 2026–27, the department identifies Form 10E as the form used to claim Section 89 relief. The form records the details needed to support the relief calculation; the tax return is where the relief is claimed against the tax liability.
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Start with the correct year and governing law
Before opening a form, identify both the year in which you received or became entitled to the amount and the assessment year of the return. The department’s AY 2026–27 FAQ distinguishes the law and forms that apply during the transition to the Income-tax Act, 2025.
| Situation identified by the department | Governing framework | Relief form referred to in the official guidance | Practical implication |
|---|---|---|---|
| AY 2026–27 return | Income-tax Act, 1961 | Form 10E for Section 89 relief | Complete Form 10E online before filing the return, then report the relief in that return. |
| Tax Year 2026–27 under the Income-tax Act, 2025 | Income-tax Act, 2025 | Form 39 is identified for relief under the new Act | Do not assume that the Form 10E process applies to a return governed by the new Act. |
The labels “assessment year” and “tax year” are not interchangeable during this transition. Match the form to the year and Act that govern your filing. If your employer’s payment, tax deduction certificate and return year do not line up clearly, resolve that mismatch before submitting any relief form.
Is a VRS payment automatically eligible?
No automatic eligibility rule is established by the department’s general Form 10E instructions. They establish the available category and require the filer to choose an annexure according to the nature of the receipt; they do not decide how every employer’s VRS package should be classified.
Separate the payment into components
Obtain the VRS offer or scheme document, the employer’s settlement statement and the salary or tax-deduction certificate. Make a component-by-component schedule before entering Form 10E.
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| Payment information to identify | Why it matters for a Section 89 review |
|---|---|
| Description used by the employer | Words such as “ex-gratia,” “compensation,” “notice pay,” “salary arrears,” “leave encashment” or “gratuity” can indicate different tax treatments. The label is evidence to review, not conclusive proof. |
| Relevant service or termination date | The timing and connection with termination help determine whether the amount fits a Form 10E category. |
| Year to which the amount relates | Section 89 analysis depends on whether income was paid in advance, in arrears or for the current period. |
| Tax deducted and reported by the employer | Use the employer’s reporting and certificate to reconcile the amount appearing in the return with the settlement documents. |
| Any amount separately treated as exempt | An exemption and Section 89 relief are separate questions. Do not include an amount in the relief calculation without checking how it was treated in the return. |
Check exemptions before calculating relief
Voluntary-retirement schemes can raise a separate question under the exemption for qualifying voluntary-retirement receipts in Section 10(10C). The official material reviewed here does not determine how that exemption interacts with a particular VRS payment and a Section 89 claim. Do not assume that a payment is both fully exempt and fully eligible for relief on the same amount, or that claiming one treatment automatically establishes the other.
Where the scheme terms, component breakdown or exemption position is unclear, obtain a fact-specific opinion from a qualified tax professional. A general filing guide cannot determine eligibility for an individual settlement.
Documents and information to assemble
- VRS offer letter, scheme rules and acceptance or separation documents.
- Employer’s final settlement statement or salary certificate showing each component separately.
- Form 16 or other employer tax certificate for the relevant year.
- Salary and tax details for the year in which the amount was received and for the year or years to which an arrear or advance amount relates.
- Details of any amount claimed as exempt, including the basis on which the employer treated it as exempt.
- Your active PAN and credentials for the income-tax e-filing account.
- Working papers showing how the amount entered in Form 10E reconciles with the employer’s documents and the figures in the return.
Keep the documents even though the form is submitted electronically. The online submission is a reporting step; it does not replace the underlying evidence for the classification and computation.
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The following sequence reflects the department’s online procedure for a Section 89 claim under the 1961 Act.
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- Confirm the assessment year. For an AY 2026–27 return under the 1961 Act, use the Form 10E process described by the department. If your filing is under the Income-tax Act, 2025, stop and verify whether the applicable relief form is Form 39 instead.
- Classify the receipt. Read the VRS documents and the employer’s payment statement. Separate compensation connected with termination from other amounts and identify the year or years to which each amount relates.
- Review eligibility and exemptions. Decide whether the component is a qualifying receipt for Section 89 purposes and how any Section 10(10C) or other exemption has been treated. If the facts do not support a clear classification, obtain professional advice before filing.
- Sign in to the income-tax e-filing portal. The department’s manual describes Form 10E as an online form. You must be a registered user with an active PAN. Use the portal’s current Form 10E service rather than relying on an old downloaded or paper workflow.
- Select the annexure that matches the receipt. Form 10E contains categories for different types of arrears, advances and termination-related compensation. Choose the annexure that reflects the nature of your payment; do not select one merely because it produces a preferred result.
- Enter the figures from your working papers. Transcribe the relevant years, income figures, tax details and relief calculation consistently with the employer’s documents and the return. Check that totals and year references reconcile before submission.
- Submit Form 10E online and retain the acknowledgement. Save the submission confirmation and a copy of the completed form. The acknowledgement is evidence that the procedural filing was made; it is not a ruling that the payment qualifies.
- File the income-tax return for the matching assessment year. In the return, use the Section 89 tax-relief entry and ensure that the income, tax deducted and exempt amounts agree with the documents and with Form 10E. Select the ITR form based on your complete tax profile; the Form 10E guidance does not determine which ITR form is appropriate for every taxpayer.
Is Form 10E mandatory for Section 89 relief?
Yes, if you want to claim Section 89 relief on arrear or advance income. The Income Tax Department’s FAQ states: “Yes, it is mandatory to file Form 10E if you want to claim a tax relief on your arrear / advance income.” The department further warns that it will process an ITR containing the relief claim without Form 10E, but the relief will not be allowed.
This makes Form 10E a condition of obtaining the relief through the return, not an optional attachment that can be supplied later as a matter of routine. Filing the form does not remove the need to support the underlying eligibility and figures.
When should Form 10E be filed?
Submit Form 10E before you file the income-tax return that claims the Section 89 relief. The department describes this order as advisable and explains that omission can lead to disallowance when the return is processed. The disallowance is communicated in an intimation under Section 143(1).
If you have already filed the return without Form 10E, check the status and available response or correction options on the e-filing portal and consider professional advice. Do not assume that entering the relief in a later communication will automatically restore it; the department’s stated processing rule is that the form should precede the return.
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How the return and Form 10E should agree
Use one reconciliation sheet for both filings. At minimum, it should show:
- the gross amount received under the VRS settlement;
- each separately identified component;
- the portion, if any, treated as exempt;
- the amount considered for Section 89 relief;
- the assessment year and the prior or subsequent year to which an arrear or advance amount relates;
- tax deducted and salary figures reported by the employer; and
- the Section 89 amount entered in the ITR.
The figures do not need to be identical across every document because a settlement can contain exempt and taxable portions, but every difference should have a documented explanation. A mismatch between Form 10E, Form 16 and the ITR can create a processing query even when the underlying claim is supportable.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Common mistakes and how to correct them
| Mistake | Why it causes trouble | Safer response |
|---|---|---|
| Assuming every VRS payment qualifies | The form categories do not establish eligibility for every scheme or component. | Review the scheme terms, payment breakdown and year allocation before selecting an annexure. |
| Treating the package as one undivided amount | Different components can have different tax treatment. | Reconcile each component with the employer’s statement and identify any exempt amount separately. |
| Filing the ITR first | The department says relief can be disallowed when Form 10E was not filed beforehand. | Submit Form 10E, save its acknowledgement, and then file the return. |
| Using the wrong year’s form | The 2026–27 transition distinguishes the 1961 Act from the 2025 Act and uses different form references. | Determine whether your filing is an AY 2026–27 return under the 1961 Act or a Tax Year 2026–27 return under the new Act. |
| Choosing an annexure because it appears to maximize relief | The annexure must reflect the nature of the receipt. | Base the selection on the documents and obtain advice if the classification is uncertain. |
| Ignoring the exemption analysis | A VRS amount may have an exemption issue separate from Section 89 relief. | Document how any Section 10(10C) or other exemption was treated before computing relief. |
| Failing to retain proof of submission | You may need to demonstrate that Form 10E preceded the return. | Download or otherwise retain the acknowledgement and the submitted form with your tax records. |
What to do if the portal or documents do not fit your case
The employer supplied only a single lump-sum figure
Ask for a component-wise settlement statement and the employer’s tax treatment. A single figure is not enough to determine whether the payment is termination compensation, salary arrears, an exempt amount or another category.
The payment spans more than one year
Obtain the employer’s allocation and build your own year-wise schedule. Section 89 relief is sensitive to the year in which income is received and the year to which it relates; do not enter one undifferentiated total simply because it was paid on one date.
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The return year and portal labels appear inconsistent
Pause before submission. Verify the assessment year, the governing Act and whether the portal is presenting Form 10E or the newer form reference. A qualified adviser can help where the transition terminology does not match your employer’s documents.
The return was processed without the relief
Read the Section 143(1) intimation to identify the reason. If Form 10E was missing, the processing outcome is consistent with the department’s stated rule. If Form 10E was filed first, compare the acknowledgement date, the assessment year, the relief amount and the ITR entry, then use the appropriate portal response or correction route and seek professional advice where necessary.
Questions a professional should be able to answer
Fact-specific advice is particularly valuable when any of these questions is unresolved:
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- Which parts of the VRS settlement are compensation connected with termination, and which are separate employment dues?
- Does the payment satisfy the conditions for any applicable exemption, and how does that treatment affect the amount considered for relief?
- Which year-wise figures should be used in the Form 10E calculation?
- Which annexure matches the documented nature of the receipt?
- Does the transition between the 1961 and 2025 Acts change the form or return treatment for the taxpayer’s year?
These are classification and computation questions, not matters that can be answered solely from the fact that the employer used the term “voluntary retirement.”
Recordkeeping after filing
Keep the VRS scheme documents, settlement statement, tax certificate, exemption working, Form 10E copy, acknowledgement, ITR acknowledgement and any Section 143(1) intimation together. Preserve the year-wise calculation that connects the payment to the relief claimed. If the tax department later asks how the amount was classified, these records show the basis for the entry rather than only the final number.
Bottom line for an AY 2026–27 VRS claim
For an AY 2026–27 return governed by the Income-tax Act, 1961, the required sequence is to classify the VRS payment, assess eligibility and exemptions, submit the online Form 10E with the appropriate annexure, and then claim Section 89 relief in the matching ITR. Filing the return first can result in the relief being disallowed under the department’s Section 143(1) processing. Because the official form instructions do not decide the treatment of every VRS package, the documents and component-wise analysis determine whether a claim is supportable.
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