The lack of clarity over taxation of arrears that government employees will receive following the implementation of the 6th Pay Commission recommendations has finally cleared. The tax on first installment will be deducted in the current fiscal and that on the second installment will be deducted next year when they receive the actual payment.
According to finance ministry sources, only the first installment of the arrears would be taxed this fiscal. If the tax is deducted, employees who do not fall in the slab of 30% rate of income tax would have to bear a surcharge, as their total income, including both installments would have been higher. As per the current income tax slab, income over Rs 2,50,000 attracts a tax rate of 30% and income above Rs 10,00,000 attracts a rate of 30% as also 10% surcharge.
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