Sixth Pay Commission Arrears - Taxability of second instalment in the FY 2008-09
Consequent to the acceptance of the recommendations of the Sixth Pay Commission, the Department of Expenditure vide its O.M.F.No. 1/1/2008-IC dated 30-8-2008 issued an instruction that the first instalment of the salary arrears, amounting to 40% of the total arrears would be paid in the financial year 2008-09, and that separate orders will be issued in respect of payment of second instalment of salary arrears.
CBDT has considered the question of taxability of the second instalment of salary arrears in the financial year 2008-09, i.e., the assessment year 2009-10.
Section 15(1)(c) of the Income-tax Act, 1961, provides that arrears of salary shall be chargeable to tax in the previous year in which they are paid or allowed.
It has accordingly been decided that the second instalment of salary arrears, comprising of 60%, arrears of salary, cannot to be brought to tax in the assessment year 2009-10 as the arrears had neither been paid nor allowed up to March 31, 2009.
What if the DDOs had considered the second instalment of salary arrears also for the purpose of taxable income and deducted the tax at source during FY, 2009? While CBDT can afford to issue a clarification on TDS pertaining to FY 2008-09 i.e. AY 2009-10 at leisure, DDOs cannot afford to have that luxury of waiting for this long pending clarification to decide on TDS deductions. After all TDS deductions cannot be withheld by the DDOs, lest they should be held liable for penal action. CBDT could have come up with this two line clarification much before March 31, 2009.
CBDT Instruction F.No. 173/163/2008/IT(A-1), dated 26-6-2009