Is Form 10E applicable for Notice Pay received in Full & Final Settlement?

[Amit]

Hi Everyone,

I need some guidance regarding Section 89 and Form 10E.

I resigned from my job and my last working day was 27-Feb-2026. My notice period was 3 months, but the company relieved me early and paid me for the remaining 3 notice period as part of my Full & Final settlement.

The breakup included:

• 1 month as Resign Salary Release (Feb)
• 2 months as Notice Pay(Mar and April)

The entire amount was taxed, TDS was deducted, and it is included in my Form 16 for FY 2025-26.

Because of this, an amount equivalent to the April (FY 2026-27) notice period was also taxed in FY 2025-26, even though my employment had already ended in February.

Can I claim relief under Section 89 by filing Form 10E for this payment?

[Sanjeev Agarwal]

Based on the facts you've shared, you may be eligible to claim relief under Section 89 by filing Form 10E, but only if the payment qualifies as salary received in advance and the calculation under Rule 21A results in a tax benefit.

Your Situation

• Last working day: 27-Feb-2026
• Notice period: 3 months, but your employer relieved you early.
• F&F settlement included:
  • February salary (1 month)
  • Notice pay for March (1 month)
  • Notice pay for April (1 month)
• The entire amount was paid and taxed in FY 2025-26, with TDS deducted and reflected in Form 16.

Since the April notice pay relates to FY 2026-27 but was received and taxed in FY 2025-26, it may be treated as salary received in advance, which is one of the situations covered under Section 89.

Can Section 89 Relief Be Claimed?

Possibly, yes. Section 89 is intended to provide relief where salary received in advance or arrears causes a higher tax burden because it is taxed in a different financial year than the period to which it relates.

However, relief is not automatic simply because future salary was paid early.

How Relief Is Calculated

Rule 21A requires a comparison of:

1. Tax payable in FY 2025-26 including the advance salary.
2. Tax payable in FY 2025-26 excluding the advance salary.
3. Tax that would have been payable if the advance salary had been taxed in FY 2026-27.

Relief is available only if this comparison shows that you paid additional tax because the income was taxed earlier.

Form 10E

If the payment is treated as salary received in advance, you should file Form 10E (Annexure I - Salary Received in Advance) before filing your Income Tax Return.

When Relief May Be Nil

Even if you're eligible to file Form 10E, the actual relief may be zero if:

• Your tax slab remains the same in both years.
• The advance salary does not increase your effective tax rate.
• The Rule 21A calculation does not show any excess tax.

Documents to Keep

Maintain:

• Full & Final settlement statement
• Form 16
• Salary slips
• Resignation acceptance and relieving letter
• Notice pay breakup (February salary, March notice pay, April notice pay)

Conclusion: Based on the facts provided, there is a reasonable basis to examine and claim relief under Section 89, as part of your notice pay relates to the next financial year but was taxed in the current year. Whether you actually receive relief depends entirely on the Rule 21A computation, not merely on the fact that the payment was received in advance.

AI Summary

Section 89 relief for advance notice pay depends on Rule 21A computation and Form 10E filing.
Notice pay received in a full and final settlement may be examined for relief under Section 89 where a portion of the amount relates to a later financial year but is received and taxed earlier. Relief is available only if the payment qualifies as salary received in advance and the computation under Rule 21A shows that earlier taxation created an additional tax burden. Form 10E should be filed before filing the return, but the actual relief may still be nil if the comparison does not produce any difference in tax liability.