ARREARS - BREAK DOWN TO PREVIOUS YEARS

BREAKING DOWN ARREARS FINANCIAL YEAR WISE FOR INCOME TAX PURPOSES

1.      During the currency of 6th CPC we have received arrears pertaining to various judgement of the AFTs and Honourable Supreme Court of India. The recent one being the arrears for minimum pension wef 01 Jan 2006 to 23 Sep 2012 and there after the OROP Arrears during the Last financial year i.e F Y 2015-16, for which we shall soon be paying hefty income tax.

2.      The IT Dept provides for breaking down the arrears to previous years and club them with the income of those past years for our benefit if we so feel like. The table below will help you breakdown the arrears followed by the detailed explanation to help you decide as to what must be done in this matter, since it is smply your choice.









IThe table above gives you the breakdown of the arrears under Cir-500 & 548 pertaining to the period from 01 Jan 2006 to 23 Sep 2012 from the  AYs 2006-07 to 2013-14 that would assist the veteran officers to assign  the arrears that veterans have received subsequent to the final judgment as per which pension is to be linked to minimum of the pay in the pay band and that the arrears are to be paid from 1.1.2006 and NOT from 24.9.2012, as the Govt had paid earlier. Arrears from 24.9.2012 had been paid earlier during FY 2012-13 (AY 2013-14).

I had in my earlier email stated that since the arrears pertain to AY 2006-07 to AY 2013-14, assesses could adjust the arrears to their respective AYs and if by doing so the assesses benefit they could claim relief under S 89(1) of the Income Tax Act. Though my friends would know how to go about, for the convenience of those who do not, I explaining it below.

1. Add the arrears pertaining to a given AY to the "Returned Income" of that AY and calculate the excess tax liability of that AY.

2. Do likewise for AY 2006-07 to AY 2013-14.

3. Add these excess tax liabilities.

4. Let's call this as figure "A".


5. After the aforesaid exercise, compute tax liability of the AY in which arrears have been received (AY 2016-17) with cumulative arrears. Call it "X".

6. Compute tax liability without the cumulative arrears. Call it "Y".

7. Subtract "Y" from "X". Call the difference as "B" ("X" - "Y").

8. If "B" is less than "A" nothing need be done further. Pay tax and efile the Return with cumulative arrears added.

9. If, however, "B" is more than "A" compute tax on the income with cumulative arrears.

10. Claim the difference
("B" - "A") as relief under S 89(1) of the Income Tax Act. TABLE "A" IN FORM 10E is quite simple and self explanatory.

Example:

Say you work out the tax lability with cumulative arrears. Assume it to be 4,00,000/-. ("X").

Then work out tax liability without cumulative arrears. Assume it to be 3,00,000/-. ("Y").

Difference is 4,00,000 - 3,00,000 = 1,00,000. ("B").

Work out from Table "A" given in Form 10E the excess tax liability as explained above - assigning arrears pertaining to a give AY to that AY. Assume it to be 40,000/-. ("A").

After returning income with cumulative arrears included (which in this example will be 4,00,000/-), claim relief of the excess namely 1,00,000/- minus 40,000/- that is 60,000/- under S 89(1) while efiling the Return.

However, the veterans may find it cumbersome to break down the arrears for their respective AYs.

Hence this email to assist.

Divide the total arrears (adding the TDS) by 103.64. Thus will give you a figure that is the differential of the pension. Call it "a"

Now multiply "a" with the following multiplication factor for different AYs as below:

AY. Multiplication Factor

2006-07. 2.00
2007-08. 12.24
2008-09. 13.02
2009-10. 13.88
2010-11. 15.20
2011-12. 17.12
2012-13. 18.82
2013-14. 11.36

Total. 103.64

With computation as above one can easily fill up Table "A" in Form 10E for claiming relief under S 89(1).

Veterans may like to save this for futures arrears of OROP (three more instalments are due) as also when the PMR get their arrears, earlier reduced due to pro-rata reduction due to less than 33 years of service.