Centre will levy I-T on 40% pay arrears

New Delhi, Sept. 3: The government on Wednesday said that it would tax only 40 per cent of salary arrears to be paid to Central government employees in the current fiscal on implementation of Sixth Pay Commission recommendations.

Generally, income earned in a financial year is taxed in that particular year, official sources said.

However, it has been reported that the entire amount of arrears would attract tax this fiscal.

As per the notification issued by the government last month, the Central government employees will get 40 per cent of arrears during the current fiscal and the remaining amount in the next fiscal.

The government instructions, regarding the fixation of pay and payment arrears consequent to implementation of the Sixth Central Pay Commission recommendations, clearly states that in authorising the arrears income tax as due may also be deducted and credited to the government.

The arrears with effect from January 2006 would cost Rs 29,373 crore. Of the arrears, 40 per cent would be paid during the current year to the 50 lakh employees of the Central government.

The revised pay scales will add Rs 4,500-5,500 crore to the government exchequer this fiscal in the form of personal income tax.

Besides, some money would also come through indirect taxes as some of the increased pay would go into buying products and services, official sources said here.

The increased burden on the Centre would be Rs 22,131 crore in 2008-09 due to the increased payout. While the additional load on the Union Budget would be Rs 15,717 crore, the Railway Budget would take Rs 6,414 crore.

However, one-fifth to one-fourth of this amount is expected to come back to the government exchequer in the form of personal income-tax, depending on the slab that each employee would fall in after the pay hike, sources said.

This means that Rs 4,426.20-5,532.75 crore would be added to the central kitty. - PTI