7th CPC : Arrears to be paid in one instalment

New Delhi: The central government employees and pensioners will get arrears of the Seventh Pay Commission in one instalment, besides their pay hike.

The Implementation Cell in Finance ministry will submit a report to Finance Minister Arun Jaitley to pay the arrears of the Seventh Pay Commission in one instalment.

According to sources, the Implementation Cell in Finance ministry will submit a report to Finance Minister Arun Jaitley on arrears payment of the Seventh Pay Commission in a single instalment along with the reviews of whole pay commission report.

The entire concept of ‘arrears of pay’ has shot into the lime light as a result of the recommendations of the Seventh Pay Commission that has been released in November, proposed a 23.55% increase in pay, allowances and pension for 4.8 million central government employees and 5.5 million pensioners, which have resulted in a pay hike of central government employees with a retrospective effect from January 1, 2016.

According to reports,The recommendations of the Seventh Pay Commission are expected to add Rs 73,650 crore or 0.65 percent of the GDP in the first year, to the government’s expenditure. In line with the recommendations of the Commission, the government will pay hike salaries as well as pensions.

Also, the recommendations of the Commission come into effect from 1 January, 2016. They will be implemented from 1 April, 2016. Hence, arrears for the three months of January to March 2016 will also have to be paid. This is likely to amount to Rs 18,412.5 crore (Rs 73,650 divided by four). This pushes up the total extra expenditure due to the recommendations of the Seventh Pay Commission to Rs 92,062.5 crore (Rs 73,650 crore plus Rs 18,412.5 crore).

Over and above this, the Railways has requested the government to fund the extra money it would have to spend in order to meet the recommendations of the Seventh Pay Commission. This is estimated to be Rs 28,450 crore.

The Pay Commission in its reports expected the Railways to meet this extra expenditure out of its own revenues. But with the revenues of the Railways not growing as fast as they were expected to, this may not happen now.

Further, arrears of the first three months of 2016 will also have to be paid by the Railways and this will push the total extra expenditure of the Railways to be funded by the government to Rs 35,562.5 crore (Rs 28,450 crore plus Rs 28,450 crore divided by four).

Hence, the total extra expenditure of the government due to the recommendations of the Seventh Pay Commission will come to Rs 1,27,625 crore (Rs 92,062.5 crore plus Rs 35,562.5 crore).

But, along with this big bonanza, there is also a question that is dwelling in the minds of central government employees. The question arises that how much Income tax is payable on the salary and arrears and is there any relief available?

The tax on hike pay and arrears will be deducted in the next fiscal and sources confirmed that there is no relief available in taxation on pay hikes and arrears as payment will be made in the same fiscal.

According to finance ministry sources, the central government employees will be paid their higher pay and arrears in the fiscal 2016 and arrears that will be paid in a single instalment. The taxation, accordingly will be implemented at the time of payment.

The rate of income tax will be implemented according to the next budget 2016-17.