Dear Friends ,
In this post we discuss various aspects of the tax due of arrears received /allowed to the Govt employees in light of Income tax
rules
Arrears to be given on the basis of sixth pay commission Report
Now is debatable point is whether all the arrears is to include in the Income of the Financial year 2008-09 irrespective of that 60% of the arrears are to be paid in Financial year 2009-10
relevant provision of the Income Tax act is given hereunder
but in sixth pay commission govt while issuing the order it self has mentioned that 60 % of the arrears will be paid in 2009-10 ,so that amount becomes due in the year 2009-10 as the right to receive of employee and obligation to pay of employers will arises in the financial year 2009-10
so on the basic of above ,can we conclude here that as the payment of 60 % arrears is neither received in the financial year of 2008-09 nor its become due in fy 2008-09 ,so it is not taxable in the F.year 2008-09?
The answer is no,why?
The reason is word "allowed "(given in the red above) in the section 15(b) ,is a hindrance to our conclusion given above.
This word says that salary is taxable in the year, when the salary is "allowed" ,allowed means fixed ,and as per the govt order ,salary of the govt employee is to be fixed in the month of September,2008,
Meaning of "allowed":The word ‘allowed’ is of wider connotation and any credit made in the employer’s account is covered thereby. The said expression in the legal terminology is equivalent to ‘fixed, taken into account, set apart, granted’. It takes in perquisites given in cash or in kind or in money or money’s worth and also amenities which are not convertible into money - CIT v. L.W. Russel [1964] 53 ITR 91 (SC).
so as per law the full salary is taxable in fy 2008-09 including the 60 % arrears which is though due/paid in the year fy 2009-10 .
Employers Responsibility to deduct TDS on salary:As per Income tax act ,all employers are responsible to deduct tax due on salary paid to the employee .so here employers responsibility is to deduct tax due on the salary in financial year.
Related section:section 192 given hereunder
So,now responsibility to pay taxes on arrears of 60% in fy 2008-09 ,lies with the employee it self ,but if we leave advance tax issue than ,all we have time upto 31st july 2009 ,to think over it and pay taxes on the arrears,by then who know Govt issue a special circular for non taxability of the the 60 % arrears in the Financial year 2008-09.
So,the conclusion is that as per the prevailing income tax act/rules 60% arrears ,which is to paid in the Financial year 2009-10,is taxable and is to included in the income of the employees in the Financial year 2008-09 itself,unless govt gives a special relief in this regard.so same rule is applicable on pension also as they are also covered under salary definition under income tax act.
Employee can take benefit u/s 89(1) for segregation of salary in relevant year ,we are preparing a calculator for calculation of rebate u/s 89(1) ,and publish in coming days
(B)FAMILY PENSION
Family pension is taxable under Income tax head "Income from other sources" ,so above rule is not applicable on the family pension arrears and so 60 % arrears will be taxable in the year of payment i.e in Financial year 2009-10
(C)GRATUITY:The Gratuity limit has been enhanced for 10 lacs from 3.5 lakhs,so those employee who has received their gratuity equal to upper limit of 3.5 lacks get arrears of it .the enhanced limit is for employees who retires on or after 01.01.2006.As per Income tax act ,any death cum retirement gratuity recived by an employee of the Central or State government or local authority is wholly exempted from the tax u/s 10(10)(i)
(D)REVISED COMMUTATION ON ACCOUNT OF REVISED PENSION:Employees retired on or after 01.01.06 ,are eligible to get revised pension due to revision of pay and they can commute 40% increased amount of pension as per pension rules,For commutation on account of revised pension due to revision of pay by sixth pay commission from retrospective effect ,will be given on the basis of revised table given in the report.The table is less favorable to employee and based on 8% rate table of LIC.As per income tax act ,any commuted pension received by the Centeral,State govt or local authority employee is fully exempted u/s 10(10A)(i)
Arrears to be given on the basis of sixth pay commission Report
- As per sixth pay commission the report is applicable from 01.01.2006 but allowances are payable prospectively from 01.09.2008 expect DA(dearness allowance)
- Arrears Of Basic Pay,Grade pay and DA is admissible to be calculate from 01.01.2006 to 31.08.2008 ,but it is to paid 40% in Financial year 2008-09 and 60 % in Financial Year 2009-10.
- The same in the case of pensioners,arrears of diff,. between Basic Pension and DA is to be paid in two Installments ,first 40% in Financial Year 2008-09 and 60% in Financial year 2009-10,same in the case of family pensioners
- Arrears due to revised pension due to person retired after 01.01.2006 regarding Gratuity,Leave encashment,commuted Pension ,DCRG,is payable immediately.
Now is debatable point is whether all the arrears is to include in the Income of the Financial year 2008-09 irrespective of that 60% of the arrears are to be paid in Financial year 2009-10
relevant provision of the Income Tax act is given hereunder
Salaries.15.The following income shall be chargeable to income-tax under the head Salaries(a) any salary due from an employer or a former employer to an assessee in the previous year,whether paid or not;(b) any salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer though not due or before it became due to him;(c) any arrears of salary paid or allowed to him in the previous year by or on behalf of an employer or a former employer, if not charged to income-tax for any earlier previous year.[Explanation 1].For the removal of doubts, it is hereby declared that where any salary paid in advance is included in the total income of any person for any previous year it shall not be included again in the total income of the person when the salary becomes due.
In general term salary is taxable on the basis of these principal "due or paid ,which ever is earlier"The section 15 says that[Explanation 2.Any salary, bonus, commission or remuneration, by whatever name called, due to, or received by, a partner of a firm from the firm shall not be regarded as salary for the purposes of this section.]
- If salary is due to employee but not yet paid, it will be taxable in previous year.
- If salary is paid, though not due (like advance salary) is also taxable in the year of payment it self
- If salary is taxable in earlier year on the payment basis than it will not be again taxable on due basis or vice versa
but in sixth pay commission govt while issuing the order it self has mentioned that 60 % of the arrears will be paid in 2009-10 ,so that amount becomes due in the year 2009-10 as the right to receive of employee and obligation to pay of employers will arises in the financial year 2009-10
so on the basic of above ,can we conclude here that as the payment of 60 % arrears is neither received in the financial year of 2008-09 nor its become due in fy 2008-09 ,so it is not taxable in the F.year 2008-09?
The answer is no,why?
The reason is word "allowed "(given in the red above) in the section 15(b) ,is a hindrance to our conclusion given above.
This word says that salary is taxable in the year, when the salary is "allowed" ,allowed means fixed ,and as per the govt order ,salary of the govt employee is to be fixed in the month of September,2008,
Meaning of "allowed":The word ‘allowed’ is of wider connotation and any credit made in the employer’s account is covered thereby. The said expression in the legal terminology is equivalent to ‘fixed, taken into account, set apart, granted’. It takes in perquisites given in cash or in kind or in money or money’s worth and also amenities which are not convertible into money - CIT v. L.W. Russel [1964] 53 ITR 91 (SC).
so as per law the full salary is taxable in fy 2008-09 including the 60 % arrears which is though due/paid in the year fy 2009-10 .
Employers Responsibility to deduct TDS on salary:As per Income tax act ,all employers are responsible to deduct tax due on salary paid to the employee .so here employers responsibility is to deduct tax due on the salary in financial year.
Related section:section 192 given hereunder
please check words in red :at the time of payment",means employers responsibility to deduct TDS is arises only when payment is made and not when the salary due or allowed in a previous year,so as far as employer is concerned, relived from deducting any tax on the arrears of 60% ,as they are to be paid in FY 2009-10"192. (1) Any person responsible for paying any income chargeable under the head Salaries shall, at the time of payment, deduct income-tax on the amount payable at the average rate of income-tax computed on the basis of the rates in force for the financial year in which the payment is made, on the estimated income of the assessee under this head for that financial year.
So,now responsibility to pay taxes on arrears of 60% in fy 2008-09 ,lies with the employee it self ,but if we leave advance tax issue than ,all we have time upto 31st july 2009 ,to think over it and pay taxes on the arrears,by then who know Govt issue a special circular for non taxability of the the 60 % arrears in the Financial year 2008-09.
So,the conclusion is that as per the prevailing income tax act/rules 60% arrears ,which is to paid in the Financial year 2009-10,is taxable and is to included in the income of the employees in the Financial year 2008-09 itself,unless govt gives a special relief in this regard.so same rule is applicable on pension also as they are also covered under salary definition under income tax act.
Employee can take benefit u/s 89(1) for segregation of salary in relevant year ,we are preparing a calculator for calculation of rebate u/s 89(1) ,and publish in coming days
(B)FAMILY PENSION
Family pension is taxable under Income tax head "Income from other sources" ,so above rule is not applicable on the family pension arrears and so 60 % arrears will be taxable in the year of payment i.e in Financial year 2009-10
(C)GRATUITY:The Gratuity limit has been enhanced for 10 lacs from 3.5 lakhs,so those employee who has received their gratuity equal to upper limit of 3.5 lacks get arrears of it .the enhanced limit is for employees who retires on or after 01.01.2006.As per Income tax act ,any death cum retirement gratuity recived by an employee of the Central or State government or local authority is wholly exempted from the tax u/s 10(10)(i)
(D)REVISED COMMUTATION ON ACCOUNT OF REVISED PENSION:Employees retired on or after 01.01.06 ,are eligible to get revised pension due to revision of pay and they can commute 40% increased amount of pension as per pension rules,For commutation on account of revised pension due to revision of pay by sixth pay commission from retrospective effect ,will be given on the basis of revised table given in the report.The table is less favorable to employee and based on 8% rate table of LIC.As per income tax act ,any commuted pension received by the Centeral,State govt or local authority employee is fully exempted u/s 10(10A)(i)
please record your view,positive or negative & appeal to govt to give relexation
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