Conflicting messages circulating on social media regarding the tax treatment of Dearness Allowance (DA) arrears credited in January 2026 have created confusion among employees. Tax experts and treasury rules clarify that the treatment depends on when the arrears were taxed earlier and how they appear in Form 16.
Which Financial Year Do January 2026 DA Arrears Belong To?
DA arrears credited in January 2026 are generally considered income of Financial Year 2025–26. Accordingly, such income is normally required to be reported in the Income Tax Return for Assessment Year 2026–27.
This principle follows the standard income tax rule that salary income is taxable in the year in which it is received or credited, unless already taxed earlier.
When DA Arrears Need Not Be Shown Again
If DA arrears were already included in taxable income in an earlier financial year—based on the year in which the bill was passed in the treasury—then the same income should not be shown again in the current year’s return.
In such cases, employees must retain supporting proof, such as:
- Earlier year Form 16
- Monthly salary statements or Annexure 1
These documents may be required if the Income Tax Department seeks clarification.
Treasury Rule Clarification
According to treasury rules, salary components are taxable in the financial year in which the salary bill is passed by the treasury, not merely the year in which arrears are deposited.
Therefore, if DA arrears credited now relate to bills that were not passed in the current financial year, they may already have been accounted for earlier.
Section 89(1) Relief for DA Arrears
Receiving DA arrears in a lump sum can push employees into a higher tax slab. To reduce this additional tax burden, relief can be claimed under Section 89(1) of the Income Tax Act.
This relief is available only under the Old Tax Regime.
Form 10E Is Mandatory
To claim Section 89(1) relief, employees must submit Form 10E online before filing their Income Tax Return.
Form 10E allows the arrears to be allocated to the years to which they relate, enabling recalculation of tax and reduction of excess tax liability.
Warning on Misinformation
Tax officials caution against messages claiming that DA arrears should not be shown in ITR under any circumstances. Such blanket advice is incorrect and may lead to tax notices.
If DA arrears are neither reported nor supported with proof of earlier taxation, the responsibility for incorrect filing may fall on the Drawing and Disbursing Officer (DDO) as well as the employee.
Key Takeaway
Employees are advised to verify:
- Whether DA arrears were taxed earlier
- Whether they appear in the current year’s Form 16
- Whether Section 89(1) relief is applicable
Consulting official salary statements or a tax professional is recommended before filing returns.
