I am a government employee and have just received arrears for the past two years. Am I liable for tax deducted at source on the entire amount in this year? - Suresh Murali, Bengaluru
Salary income is taxable in the year in which it is due or received, whichever is earlier. Hence, if the salary arrears were due—the amount ascertained and unconditionally payable to you in past two financial years, it should have been taxed in the past in the respective financial years. But where it can be established that there was an uncertainty on the payment and/or quantum of arrears, the same may be taxable in 2015-16, on receipt basis, if not already taxed earlier.
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Accordingly, the employer would be liable to deduct tax at the applicable income slab rate at the time of payment of salary arrears, and deposit the same into the government treasury within the specified due dates. The higher tax incidence in 2015-16 owing to salary arrears being taxed in the year of receipt can be mitigated by claiming a relief, as per the prescribed arithmetical formula specified under Section 89. There is also a prescribed form to be produced to your employer for this purpose.
Apart from this, you would be required to report the salary arrears along with the taxes deducted at source by the employer in the tax return form. The relief, if any, claimed has to be reported in the schedule titled “relief” of the tax return form to be compliant from disclosure perspective.
