It often takes weeks, or even months, for employees to receive their full and final settlement after they resign from a workplace. If this payout spills into the next financial year, it can significantly increase tax liability, as the lump sum is taxed in the year of receipt. This may push taxpayers into a higher tax bracket, resulting in higher outgo.
To address this issue, the government has introduced Form 39 under the new Income Tax Act, 2025. This form replaces the existing Form 10E and will be applicable from Financial Year 2026–27 (Assessment Year 2027–28 onwards).
What is Form 39?
Form 39 is a mandatory form required to claim tax relief on additional income such as salary arrears, advance salary, gratuity, or pension received in a lump sum after resigning. It allows taxpayers to spread such income over the years it pertains to, thereby preventing a spike in tax liability due to higher income in a single year.
Also Read | India May See Up To $12 Billion In US Tariff Refund-Linked Gains As Claims Window Opens
The form is applicable under Section 157(1) of the Income Tax Act, 2025, which replaces the earlier relief provision under Section 89(1) of the Income Tax Act, 1961. Taxpayers will need to file Form 39 before submitting their Income Tax Return (ITR) to avail the benefit.
Purpose of Form 39:
Form 39 helps taxpayers compute and claim relief when additional income is received in a different year than when it was earned. This includes arrears, family pension, gratuity, retrenchment compensation, or commutation of pension.
It ensures that the taxpayer is not unfairly taxed at a higher rate due to timing differences in income receipt. Employees, including government staff, corporate workers, and individuals associated with institutions or organisations, can submit this form to their employer or deductor to adjust TDS accordingly.
What's New in Form 39?
Form 39 introduces a more structured and technology-driven filing process compared to the earlier Form 10E. It comes with auto-populated taxpayer details, reducing manual data entry and errors.
The form also features real-time validation, system-based verification, and integrated database checks. User-friendly elements like drop-down menus, date pickers, and checkbox confirmations further simplify the filing process.
Also Read | RBI G-Sec Auction: Govt Buys Back Securities Worth Over Rs 12,600 Crore
Additionally, the structured format divided into Part A, B, and C eliminates duplication and allows seamless system-driven validation, making the process faster and more accurate.
How to Save Tax Using Form 39:
To claim relief, taxpayers must first calculate the difference between tax payable with arrears in the current year and tax payable without them. This is then compared with the tax liability if the arrears were taxed in the respective years they were earned.
Moreover, form 39 must be filed online through the Income Tax Department's e-filing portal before submitting the ITR. The system's automation feature, on the other hand, helps minimise errors and ensure accurate computation of relief.
Essential Business Intelligence, Continuous LIVE TV, Sharp Market Insights, Practical Personal Finance Advice and Latest Stories — On NDTV Profit.