Tax Relief On Salary Arrears Under 7th Pay Commission: Follow These Steps

The Central government employees are paid arrears of salaries and allowances with retrospective effect after the implementation of the recommendations by the Pay Commission.

Currently, the Central government employees and pensioners are drawing salaries and pensions per the 7th Pay Commission matrix.

Past dues like salary arrears or pension amounts paid in the current year may attract a higher tax due to changes in tax slabs.

However, the Central Government employees, who have received salary arrears, can claim relief under Section 89 of the Income Tax Act.

Under Section 89 (1) of the Act, an assessee can claim tax relief for receiving salary in arrears or in advance or receipt of family pension in arrears.

To claim relief, government employees must file form 10E online on the Income Tax e-filing portal.

Taxpayers claiming relief under Section 89 without submission of Form 10E are likely to get a notice from the Income Tax Department.

After submitting Form 10E, it’s also mandatory to mention the details under the tax relief column in your ITR filing to get the refund.

How to file Form 10E online?

Government employees can file form 10E through the e-filing portal of the Income Tax Department.

Follow these simple steps:

Login to http://www.incometax.gov.in

Click on the e-File tab and select “tax Exemption and Reliefs/Form 10E” from the list of forms.

Select the Assessment Year and click on continue.

Form 10E contains 5 Annexures for different types of arrears. You should select Annexure-I, which is for salary received in advance or arrears.

Form 10E will automatically calculate the amount of tax relief available under Section 89.

Once you file Form 10E, you should claim it in your Income Tax Return (ITR) filing to get the money. Mention these details under the Tax Relief column in your ITR.

In early August, Minister of State for Finance Pankaj Chaudhary informed Lok Sabha that the centre was not considering setting up 8th Pay Commission for central government employees.

“No such proposal is under consideration with the government for constitution of 8th Central Pay Commission for the central government employees,” Mr Chaudhary said in a written reply to a question if the government proposes to ensure timely constitution of Pay Commission for central government employees so that it could be implemented on January 1, 2026.

To compensate central government employees for erosion in the real value of their salaries on account of inflation, dearness allowances (DA) is paid to them and the rate of DA is revised periodically every six months on the basis of rate of inflation as per the All lndia Consumer Price lndex for Industrial Workers released by Labour Bureau under the Ministry of Labour & Employment, he said.

The government had set up 7th Pay Commission in February, 2014. The recommendations of the panel were effective from January 1, 2016.

Lakhs of government employees may get a hike in their dearness allowance (DA) for the second half of this year. The DA is announced twice a year – in January and in July.

It is being speculated that due to a rise in retail inflation, the government may factor that in the DA amount.

The announcement regarding DA is normally made in March and September every year. However for one-and-a-half years after December 31, 2019, no hike or change was effected in the DA amount due to Coronavirus pandemic.

The Finance Ministry had stopped the DA hike from January 2020 until June 30, 2021, due to the Pandemic. The DA hike restarted in July last year.

Subsequently, on the basis of the 7th Pay Commission’s recommendations, DA for all Central Government employees was hiked in July 2021 to 28 per cent from 17 per cent.

Later in October 2021, DA was again hiked by three per cent and the increased amount also became effective from July 1, 2021.

Due to these two hikes, from July 1, 2021 itself, all Government employees had started receiving DA at the rate of 31 per cent.

After that on January 1, 2022 also, a three per cent hike in DA was announced, after which Government employees have been receiving DA at 34 per cent rate.

Now, whatever hike the Central Government will implement in DA, it will come into effect from July 1, 2022 onwards.

All Central government employees as well as pensioners will also get arrears due to them from July 2022 until the period the hike in DA comes into effect.