Though direct tax collections are yet to pick up speed, tax authorities are set to earn about Rs 4,000 crore of additional revenue, thanks to the release of the second tranche of the Sixth Pay Commission arrears. With this in mind, the Central Board of Direct Taxes (CBDT) has directed all Pay & Accounts Officers (PAOs) to deduct tax at source as soon as the arrears are released into the accounts of the employees.
?All the DDOs and PAOs, in the Central and state government and various organisations under them are advised to compute the correct tax liability of every employee on second installment of arrears drawn by him and immediately recover the full tax liability along with education cess thereon at the rates in force. The deduction of tax at source on such arrears payment should not be deferred in any circumstance,? the CBDT has written in a circular.
The Board has also advised PAOs to ensure that the PAN details of the employees are correctly quoted in the quarterly e-TDS returns so that they get proper credit of their tax deducted in their respective I-T returns.
The Centre last week decided to release the second installment to its 5.4 million employees, estimated to cost Rs 17,623 crore. To ease the hefty financial liability of the pay panel recommendations, the Cabinet had last year decided to release 40% of the salary arrears in 2008-09, while the remaining 60% was to be released this year.
So while employees had to pay tax on 40% of their arrears last year, the balance 60% will attract income tax this year.