I am a pensioner entitled to receive large arrears due to revision of pension entitlement.
There are three ways on which it could be offered. (1) The arrears will have to be apportioned to the respective years (2007-08, 2008-09, 2009-10), (2) the entire arrears should be added to income for year 2009-10, when the amount due as arrears was settled and (3) the arrears are to be added to the income in the years in which they are actually paid (2009-10, 2010-11 and 2011-12). What is the best course to be adopted?
The law is to tax the arrears in the years in which they are actually received, shown as the third option in the reader's query. As regards the first option of the reader, it is permissible for the arrears to be distributed to the relative years to which the arrears relate, but have the tax reckoned on this basis under Sec. 89 in the year/s of receipt or have the same result by filing returns for these years on this basis, if no returns had been filed for these years vide the third option in the query. The question of taxing the entire arrears in the year in which the sanction for arrears (second option) does not arise in law since the entire amount had not become due. They become due only as and when there is a right to receive the same.
