How can i reduce my income tax on receipt of salary arrears?

Question

I have received blocked salary in arrears related to year 2023-24 and 2024-25. If I include the same in current year, all the arrears will be taxed @ 35%. Please guide, what to do to reduce tax liability.

Answer 1

Salary arrears are not taxed at the current year’s slab rate.
Under income tax law, salary arrears are taxed at the average rate of tax of the past three years to which the arrears relate.
You should claim relief under section 149 / relevant rules for salary received in arrears.
The arrears amount is calculated separately and not added to current year salary for slab purposes.
Your employer or tax consultant should compute the average tax rate of prior years and apply it to the arrears.
This method significantly reduces tax liability and avoids 35% taxation in one year.