As per the government notification, in the FY 2008-09, 40 % of the arrears will be disbursed whereas 60 % will be disbursed in FY 2009-2010. Therefore, the tax liability of central government employees for FY 2008-09, is going to increase . It means that government will take back a portion of your arrears cake.
The point to consider is that the arrears of salary will be comprised of Four financial years.
- FY 2005-06 (January 2006 to March 2006)
- FY 2006-07 (April 2006 to March 2007 )
- FY 2007-08 (April to March 2008)
- Fy 2008-09 (April 2008 to August 2009)
Income Tax Relief
Since the arrears of salary as a result of pay commission comprise of years other than current year(FY 2008-09) , there may be cases of higher tax liability on account of receipt of money of back years. To give relief in such cases, Income Tax Act provides relief u/s 89 which says as under
89. Where an assessee is in receipt of a sum in the nature of salary, being paid in arrears or in advance or is in receipt, in any one financial year, of salary for more than twelve months or a payment which under the provisions of clause (3) of section 17 is a profit in lieu of salary, or is in receipt of a sum in the nature of family pension as defined in the Explanation to clause (iia) of section 57, being paid in arrears, due to which his total income is assessed at a rate higher than that at which it would otherwise have been assessed, the Assessing Officer shall, on an application made to him in this behalf, grant such relief as may be prescribed.
I have put a spreadsheet calculator by which you can compute the relief u/s 89 if at all available to you. Following important consideration is required for proper computation.
Fill up the Yellow Cells only and you will get the relief u/s 89 of the I T Act
Report any error , if found. The calculator for relief is termed Beta.
About taxworry
There is no column for inputting numbers relating to FY 2006. Arrears will be there for 2 months of FY 2006 (Jan & Feb 2006)
For those who have resigned please indicate whether they will get full arrears or break up into two parts
Sir,
The spreadsheet is easy,interesting and useful but the big question all the government staff ask is how we have to compute the income tax when the arrear is given in three instalments. Will you please clarify this issue with example?
Thanking you.
JANANAHR