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Tax relief for pension arrears

Sec. 89 provides for relief on salary paid in arrears or in advance. It can be taxed at the option of the assessee as salary payment relatable to the year for which it is given, though belatedly or in advance.

Since pension is also treated as salary in law, such a relief is available for pension arrears as well.

Pension arrears accrue to the pensioner when it is authorised and received in individual cases and not merely because of the common government order sanctioning the pension for all pensioners. Each pensioner’s right arises only when he becomes eligible to receive the same on the bank crediting the pensioner’s account in terms of the authorisation by the Central Government as in the case of the reader.

There can be no liability in respect of balance 60 per cent arrears to be received in the next year as the right to receive such pension has not yet accrued. It has also been so clarified by the government. Since there is no present right to such amount, it can be taxed in law only in the next year.

Sec. 89 relief is reckoned by treating it as income arising from month to month from January 1, 2006, from which date the revised pension was authorised.

Such right to spread over income is at the option of the assessee on an application made by him to the assessing officer on furnishing the prescribed particulars in Form No.10E. As the person responsible for tax deduction at source, banks could also entertain information in Form 10E and restrict tax deduction at source but it cannot, however, be done after the credit to the account of the payer since tax is deductible at the time of payment. But it happens that in most cases, tax is not deducted even in cases where the tax arrears together with the normal pension requires tax deduction at source. If the bank proposes to debit the assessee’s account at the end of the year to make good the omission, it may well entertain spread-over relief under Sec. 89 at that stage.

For the purpose of this relief past assessments need not be reopened. Relief in the current assessment arising out of the spread over relief can be deducted from the current demand. Relief will be available not only for the arrears received during the year but also for the arrears to be received during the next year at the time of deduction and assessment of income for the next succeeding year. Sec. 89 relief is not barred for pensioners, who avail themselves of deduction under Sec. 80C by way of approved investments out of the arrear amount. But spread-over may not be necessary for most pensioners if Sec. 80C deductions are availed. Those pensioners having large receipt of arrears may consider availing themselves of relief both under Sec. 80C and the option available for spread over relief under Sec. 89.

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