In case of receipt of past salary, salary in advance or receipt of family pension in arrears, tax relief under section 89(1) is allowed.

Here’s how you can calculate the tax relief as per below steps –

Step 1:
First calculate the tax payable on the total income, including additional salary – in the year it is received.

Step 2:
Now calculate tax payable on the total income, excluding additional salary in the year it is received.  You need to subtract the arrear received from the employer from the total salary received

Step 3:
Calculate the difference between Step 1 and Step 2.
This will give you the additional tax liability arrived due to arrears of income.

Step 4:
Now calculate the tax payable on the total income of that year to which the arrears relate, excluding arrears.

Step 5:
Calculate tax payable on the total income of that year to which the arrears relate, including arrears

Step 6:
Calculate the difference between Step 4 and Step 5.
This will calculate the actual tax liability in any past year pertaining to which arrears have been received in the current year, had the full arrears received in the same past year.

Step 7:
Excess of the amount at Step 3 over Step 6 is the tax relief that shall be allowed. ( Step 3 minus Step 6). If the amount in Step 6 is more than the amount in Step 3, no relief shall be allowed.