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Group 'D' staff out of tax limit after salary arrears: Experts
September, 08th 2008

Group 'D' employees of the central government, including peons and drivers, can heave a sigh of relief as they are likely to get their 40 per cent salary arrears in full without any income tax deduction on implementation of Sixth Pay Commission recommendations.

While the Group 'D' government employees will not have to pay tax on arrears, those belonging to higher levels can also claim marginal benefit by filing Form 10E of the Income Tax Returns, said a senior official of the Central Board of Direct Taxes (CBDT).

Among the Group 'D' employees, drivers receive highest salary because of over-time allowance, the tax official said, adding, "even they will fall short of the taxing limit by a whisker."

High ranking officials would not get as much benefit as their Group 'D' counterparts get as they already are in a larger tax bracket and may also be required to pay a "surcharge" on their salaries, Chartered Accountant Subhash Lakhotia said.

The government while approving the pay commission's recommendations said 40 per cent of the arrears would be paid in the current year, while the remaining 60 per cent would be disbursed in the next financial year. The arrears are with effect from January 2006.

On income tax liability on salary arrears, the official said, government employees would be required to pay taxes only on arrears which they would receive during the current year along with the benefits entitled under Section 89 and Rule 21 AA of the Income-Tax Act.

Lakhotia said senior officials "will only get a marginal benefit after filing Form 10E as the income-tax exemption limit for current year has increased."

The basic idea of Section 89, explained another Chartered Accountant Singhai Sanjay Jain, "is to give relief from income-tax to a person who receives arrears of salary in a particular year. When any person receives a salary in arrears or in advance or receives profit in lieu of salary, he can claim relief for payment of tax on such salary under section 89(1)".

The arrears would cost the government exchequer 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.

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