Income Tax -calculation procedure for Arrear salaries

Income Tax Rates for the F.Y 2008-09 (Assessment Year 2009-10)

The (direct taxes) Income Tax rates for the financial year 2008-2009 (Assessment year 2009-2010) are significantly lower than that for the financial year 2007-2008. Threshold limit of exemption from personal income tax in the case of all assesses is Rs.150,000. The threshold limit for a resident woman assessee is Rs.180,000, while for a resident senior citizen is Rs.225,000.
I. For Individuals (includes nonresidents), HUF, AOP and BOI
1. From 1,50,001 to 3,00,000 : 10% of amount greater than Rs. 1,50,000.
2. From 3,00,001 to 5,00,000 : 20% of amount greater than Rs. 3,00,000 plus Rs. 15,000.
3. Above 5,00,000 : 30% of amount greater than Rs. 5,00,000 plus Rs. 55,000.
II. For Resident Woman (except senior citizen)
1. From 1,80,000 to 3,00,000 : 10% of amount greater than Rs. 1,80,000.
2. From 3,00,000 to 5,00,000 : 20% of amount greater than Rs. 3,00,000 plus Rs. 12,000.
3. Above 5,00,000 : 30% of amount greater than Rs. 5,00,000 plus Rs. 52,000.
III. For Resident Senior Citizen
1. From 2,25,000 to 3,00,000 : 10% of amount greater than Rs. 2,25,000.
2. From 3,00,000 to 5,00,000 : 20% of amount greater than Rs. 3,00,000 plus Rs. 7,500.
3. Above 5,00,000 : 30% of amount greater than Rs. 5,00,000 plus Rs. 47,500.
Note: For nonresident senior citizen the exemption limit is Rs. 1,50,000.
Education CessThe total tax amount (including surcharge) is subject to an education cess at 3%.SurchargeA 10% surcharge (tax on tax) is applicable if the net income (after all the non-taxable allowances and deductions) is above Rs. 10 lakh. This surcharge is subject to marginal relief. The net income tax and surcharge shall not exceed the total amount payable as on income tax on income of Rs. 10,00,000 by more than the amount of total income that exceeds Rs. 10,00,000.*Senior Citizen Saving Scheme 2004 and the Post Office Time Deposit Account added to the basket of saving instruments under Section 80C of the Income Tax Act.*Additional deduction of Rs.15,000 allowed under Section 80D to an individual paying medical insurance premium for his/her parent or parents.Statutory Obligation to file return (Section 139(1)). Every individual has to furnish the return of income if his total income before allowing deduction under Chapter VI-A (that is under sections 10A, 10B, 10BA, 80C to 80U) exceeds the maximum amount which is not chargeable to income tax.

When Arrears relating to previous years are received, the Tax may be computed as under and relief for arrears may be given accordingly.
Total salaries during the financial year may sometimes include arrears relating to the previous years. Earlier, relief in such cases was to be given by the Income Tax authorities. Now the DDOs are authorized to give relief while deductions are made at source. The procedure for calculation of relief as given in Section 89/rule 21-A of Income Tax rules, is as follows:-
i) First step is to ascertain the years to which the arrears relate and their break-up-year wise;
ii) Income tax for the current year as per rates in force should be calculated for the total amount of salaries including the arrears.
iii) Income tax for the salaries for the current year excluding arrears should be calculated.
iv) Difference between (ii) and (iii) is treated as additional tax payable for the current year on the arrears of previous years.
v) Income tax for each of the previous years concerned for the salaries actually received should be calculated.
vi) Tax for the previous years including the arrears relating to the respective years should be calculated.
vii) Difference between (v) and (vi) is taken as additional tax that would have been payable in the respective years on the arrears.
viii) Relief to be given on the total tax due for the current year as per (ii) above will be the difference between Cols.(iv) and (vii).