The second instalment of arrears under the Sixth Central Pay Commission award will not only put more money in the pockets of Government employees, but may also bolster direct tax collections.

Sensing a good tax mop-up opportunity from this large payout, estimated at about Rs 17,000 crore, the Central Board of Direct Taxes (CBDT) has advised various Central ministries to deduct tax at source on such payments.

The deduction of tax at source on such arrear payments should not be deferred under any circumstance, the CBDT has said.

The I-T Department has also made it clear that failure to deduct tax at source could attract levy of penal interest. The CBDT advice covers State governments as well, as they could follow similar arrangements for their arrear payments.

The latest CBDT move comes within a week of the Department of Expenditure in the Finance Ministry giving its nod for the release of 60 per cent of arrears, the final instalment. The total arrear payout (given in two instalments) is estimated at Rs 29,000 crore. ?

The first instalment (40 per cent) was paid in 2008-09.

The domestic durable industry is betting big on the second arrears instalment adding momentum to its sales in the upcoming festive season.

Over 7 million Central Government employees and pensioners are likely to benefit from the second instalment. Arrears are being paid from January 1, 2006 to August 31, 2008.

In the wake of the drought conditions in several parts of the country, the Finance Minister, Mr Pranab Mukherjee, had recently suggested to the CBDT to increase its tax collection target for 2009-10 to Rs 4 lakh crore, from the earlier budgeted level of Rs 3.7 lakh crore.