RELIEF ON INCOME TAX ON ARREARS

WE ARE ENTITLED TO RELIEF ON INCOME TAX ON OROP-ll & lll ,  7 CPC & PMR ARRs PAID IN THE CURRENT FY - (2016-17) TO THE EXTENT OF LESSER INCOME TAX THAT WE WOULD HAVE PAID ON THESE ARRs HAD THEY BEEN PAID TO US DURING THE PREVIOUS YEARS THAN WHAT WE WILL PAY TODAY.

    During the last year our team brought out for you a post on this very subject, where in we had given a "PRIMARY SCHOOL SOLUTION" to work out the Relief on Income Tax on such like Arrears and to prepare and submit FORM 10-E on line while e-filing your ITR under Sec 89(I) of the IT ACT. This post has benefitted a large number of pensioners in saving their Income Taxes in thousands. Do read the old post which had detailed explanations on the method. The webpost is accessible at the web page -  http://signals-parivaar.blogspot.com/2016/05/relief-on-income-tax-for-arrears.html    

     This endeavour helped a large number of officers who made efforts to DO IT YOURSELF in claiming their relief, the max being Rs 80,000/- and lowest as much as Rs 1650. We received many encouraging words from them.  Some Veterans even resorted to filing their REVISED RETURNS to claim the IT relief after reading our web-post. 

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             Last year we were also informed by veterans they had seen many CAs referring to our Web Site, while filing returns for their customers and charging them something like Rs 2500/- where as the same could have, well been done by them on their own based on the simple primary school method given in our post. It was also reported by some Veterans from Meghalaya, Tamil Nadu and Rajasthan  that some Cyber Cafe walas charged as much as Rs 50/- to Rs 100/-  for providing information on Pension Entitlements and OROP referring to our blog site.

  We are thus encouraged to bring out this post which covers the arrears paid during FY 2016-17 on OROP. 7 CPC and Arrears on DL 33 Yrs Rule (PMR CASES)

WHY THE RELIEF UNDER SEC 89(1).

    Before we proceed further let us understand the principle under which such a relief is entitled. You are receiving these arrears late by a year or more as the Govt could not pay you these amounts during those earlier years for some reasons.

       "HAD THESE ARREARS BEEN PAID DURING THE PREVIOUS YEARS YOU WOULD HAVE PAID TAX AS PER YOUR LESSER "TOTAL TAXABLE INCOME (T.I)" AND LOWER IT RATES FOR THAT YEAR, THAN TODAY, WHILE YOU FALL IN THE 30% BRACKET. THIS AMT OF LESSER TAX AS COMPARED TO THE CURRENT YEAR IS YOUR RELIEF UNDER SEC 89(1)".

Important Note -- As a thumb rule 'Other than PMR cases' in case, they were taxed at the same slab (suppose 30%) in the previous two Financial Years ie 2014-15 and 2015-16 as they may be Taxed during the current year "No Relief" is likely to accrue. However the PMR cases will certainly have adequate Relief available to then which could be over One lakh of rupees in some cases.

      

Let us now proceed to deal with the arrears as received during the last Financial years i.e. FY 2016-17.   During this financial year mainly following arrears were received by us :-

    * Second Installment of OROP.

   * Third Installment of OROP.

   * 7 CPC Arrears.

   * PMR CASES (DL 33 Yrs Rule) - Arrears.

HOW TO ACCOUNT FOR OROP INSTALMENTS 

 1.   Total Arrears on OROP  so  accrued wef Jul 2014 till Feb 2016,  when the OROP was paid were divided into four portions.  The FIRST one was paid in Feb 2016 (FY 2015-16) , the SECOND one in Aug 2016 (FY 2016-17) and the THIRD too has been paid in March 2017 (FY 2016-17) in most cases. These arrears infect  pertain to the period starting from 01 July 2014 to 31 Dec 2015 for Relief purposes. These can be easily split for two years ie FY 2014-15 and 2015-16 to claim relief. 

2. One needs to know the increase/Hike in basic pension on OROP from the 6CPC figs are required to proceed further. The Table No, 1 on the right gives these figures for various ranks with full QS. In addition one also needs to know whether the relief was claimed on first installment in the last IT-Return for FY 2015-16 (Ass Yr 2016-17), showing it as arrears of the previous FY 2014-15. If not then the same was obviously included in the Total Taxable Income for the FY 2015-16 and tax paid. 





TABLE No, 1 BASIC SCALES



3.  In order to split the arrears we have derived the magic MF (Multiplication Factors) on the hike on basic pension to arrive at various figures for distribution of these OROP arrears to earlier FYs for all ranks. The hike will be different for different pensioners but the MF remains the same. Please see the calculations as below as your guide:- 

* FY 2014-15 (MF=18.81) : for a Lt Col the increase is 34765 minus 26265 = 8500 as can be seen in the table here. The arrears thus work out for the FY 2014-15 as = 8500X18.81 = Rs 159885/-.

     

      Note : In case one had shown the first installment during this FY and had claimed the relief  under Sec 89(1) the same be deducted from the above total of Rs 159885. The remaining amt still pertains to this FY and can be claimed for relief from the second installment.

       * FY 2015-16 (MF - 26.28) ; Here again for a Lt Col the arrears will be = 8500X26.28 = Rs 223380/-

      Note : The arrears on OROP received during the current Financial Year can accordingly be claimed for previous arrears if beneficial. The ready reckoner for various ranks is placed below:-

TABLE No, 2 SPLITTING OF OROP ARREARS

    

NOTE :
   1. These figs are based on OROP having been received after Mar - 2016. However individual cases should work out differently in case the OROP had been started earlier. The relief will be permitted on the above figures since wef 01 Jan 2016, the 7 CPC had been implemented and arrears paid later in 2016.

   2.        The first installment of OROP was paid mostly in Mar 2016 ie during the FY 2015-16 but actually pertained to FY 2014-15. In case the officers did not claim any relief on IT on OROP First Installment last year , they can now show the Second Installment and a portion of the third installment as the Arrears pertaining to FY 2014-15 and tax relief worked out and claimed..

    

  3.     However in case this instl was shown for FY 2014-15 in last years' ITR for tax relief, then the balance arrears ie a portion of Second  installment still pertains to FY 2014-15. In this case portion of Second installment which may be worked out in individual cases can still be treated as arrears for FY 2014-15 and relief claimed. The remaining portion will fall as arrears for FY 2015-16. Your own figures will vary depending upon the hike in OROP

    

ARREARS OF  7 CPC SCALES.

 1.   The 7 CPC was implemented wef 01 Jan 2016 while we all were in the receipt of basic scale of OROP Pension plus DR @ 125%. The 7 CPC award for every one for the time being has been fixed at your pension as on 31 Dec 2015 multiplied by a factor of 2.57. The Dearness Relief on this under 7 CPC  was NIL from Jan to Jun 2016 while it has been 2% from Jul to Dec 2016 and 4% from Jan 2017 onwards. It is thus evident that arrears received on 7 CPC award mostly pertain to last FY-2016-17, leaving those for Jan to Mar 2016 which  pertains to  FY 2015-16 for claiming relief under Sec 89(1). One can thus easily know this portion of the arrears which pertains to the last year based on your basic OROP scale as on 31 Dec 2015.

 2.    * FY 2015-16 (MF = 0.96)  : Multiply the OROP basic pension with this MF to get the arrears. eg Lt Col :: 34765X0.96= 33374.

MF is constant and can also be used for all.

3.  To help our readers we are giving a ready reckoner below rank wise Arrears for three months pertaining to FY 2015-16 to work out and claim rebate.

TABLE No, 3 SPLITTING OF ARREARS ON 7 CPC

      NOTE : Add these arrears to OROP arrears as worked out above for the FY 2015-16 for claiming  relief.

1.   We received many mails from pensioners specially from Indian Air Force and Indian Navy who took PMR and are now entitled to arrears received during the   Financial Year, asking us to help them with relief by doing special web post for the treatment of arrears received by them on DL33Yrs Rule. This post is in response to their desires.

2.    Most of the PMR Pensioners have received these arrears before 31 Mar 2017. They must have already checked the correctness of their arrears based on many tables which had been circulated on mails by many officers. These arrears pertain to the period from 01 Jan 06 to 30 Jun 2014, as such the total arrears received on this account should first be broken down Financial Year wise  ie to the years they pertain.

TABLE No, 4 SPLITTIMG OF PMR ARREARS

3.    The total PMR arrears received by various officers depend on the hike in the basic pension as affected by the provisions. They should refer to PCDA(P) Circular No 500, (Circular No 24 – Medicos) and check the hike in their basic per month pension. this be noted.

4.     One can split the total arrears either by taking into account the monthly hike (using MF as shown under Coln 'c' of the table No.4 placed alongside - in this example we have taken Rs 2270/- as the monthly hike in basic pension amounting to total arrears received as Rs 325652/- . 

5.    We can also use percentage methid by multiplying the total arrears received with yearly percentages given under Coln 'e' of the table above. Coln 'f' thus gives the breakdown Financial year wise for calculations to arrive at the relief. 

DATA NEEDED TO PROCEED

We therefore need to know the following data before proceeding further for the treatment of arrears along with the arrears of OROP and the 7 CPC :-

 

(a) . Breakdown of arrears received on PMR, OROP and 7 CPC as described above.

(b)  The“TIs” for the Fin Yrs from 2005-06 on wards till Fin Yr 2015-16, to be noted from the ITRs of previous years correctly. Relief claimed earlier during the previous year for arrears on Enhanced Pension, OROP Etc for the each previous year. (d)    Form 10-E (Table) of the previous year where the relief on  earlier arrears had been claimed in ITRs.

6.   We are now ready to prepare the Form 10-E for which a Primary Class methodology is given in our  last years  blog post. This form will give you the relief you are entitled now.

MAGICAL CONSTANTS - MULTIPLICATION FACTORS.

   In order to help our readers in their calculations of pension, arrears etc these Mathematical Constants, we call them MFs (Multiplication Factors) have been derived from complicated tables and calculations so as to bring the calculation of arrears for various periods depending on the Rates of Dearness Relief prevailing from time to time in this post, to a PRIMARY SCHOOL MATHS problem.

   The MFs for various periods are listed below, you donot have to refer any charts of the DA rates or the calendar just multiply the hike by the MF for the period and you get the amount of the arrears, so simple  isn't it.

a.  01 Jan 06 to 30 Jun 09    -   46.02

b.  01 Jul  09 to 23 sep 12    -   75.62.

c.  01 Jan 06 to 23 Sep 12    -   103.64 

d.  24 Sep 12 to 31 Dec 15   -   78.08

e.  01 Jan 06 to 30 Jun 14    -   143.404

f.   01 Jul 14 to 31 Dec 15    -   38.34

g.  01 Jan 16 to 29 Feb 16    -    4.50 (DA 125%)    

 Use these MFs for calculating your arrears for the periods shown, The error which may be there is only an ignorable  fraction in its percentage.

LIVE EXAMPLE - LT COL XY ZULU (PMR 22.5 YRS QS)

you will need details in respect of your pension and arrears before you proceed further to file your ITR and claiming relief similar to what is explained in the succeeding live example.
Let us now work for our friend  Lt  Col (TS) XY Zulu, his DATA being:-

a.  Date of Birth = Apr 1947, (Hence becomes Sr Ctz wef in FY 2011-12)
b.  PMR after 22.5 yrs of service, 
c.  Initial pen fixed as on 01/01/06 = Rs 21417/- against Rs 25700/-.
d.  Pen under Cir No 500 =Rs 21888/- against full Rs 26265/- wef 23/09/12 later made applicable vide Cir No 548 wef 01/01/06.
e.  OROP entitled wef 01/07/14  8500/mth = Rs 32428/- against full QS OROP of Rs 34765/-,   HIKE of rs 8500 per month.
f.   Pension fixed under 7 CPC (2.57 times)  = Rs 83340/- wef 01/01/16.
g.  Total  Arrs recd = Rs 892437/- along with his pension making his Total Taxable Income (TI) after all deductions to Rs 1907517/-. 
h.  Income Tax on Rs 1907517/- = Rs 4,04,023/- if relief not claimed)
j.   Sub-Details of Arrears recd in FY 2016-17  totaling as Rs 892437/- :-
          *  Sec installment of OROP = Rs116823/-
          *  Third Installment of OROP = Rs 116823/-
          *  7 CPC Arrears for Jan, Feb & mar 2016 = 31131/-
          * PMR Arrears = Rs 627661/- .

 LET US SEE IF OUR FRIEND CAN SAVE ON HIS INCOME TAX BY AN AMT OF  OVER Rs ONE LAKH.
  
Summary of Arrears Received During Current Year :-
a.  OROP-ll & OROP-lll each = Rs 116823/- (TOTAL =233646)
b.  7 CPC  = Rs 31130/- FY 2015-16
c.  PMR  = Rs 627661/- for Pd Jan-06 to Jun-14
d   Normal Pension 2016-17 = 1015080 & Arrs above = 892437/-
       TOTAL =    1907517/-

These arrears are to be  further be split into year wise to which they pertain in accordance with the method explained above as under:-

a.  OROP FY - 2014-15  -   HIKE(10540)*18.81= Rs 198258/- (We presume that First Installment of Rs 116823 was claimed for relief FY 2014-15 thereby remaining Rs 81438/-  out of the two installments amounting to Rs 233646/-  will be claimed again this year.
b.  OROP FY - 2015-16  -   HIKE(10540)*26.88= Rs 276991/-. Of this only two installments amounting to Rs 233646 were received in current year as such they less Rs 81438 ie Rs 152208/- be shown against FY 2015-16.
c.  7CPC   FY - 2015-16 -    OROP(32428)*0.96 = Rs 31130/-.
d.  PMR Arrs Ttl  HIKE (26265-21888)*143.404 = Rs 627661/-.

NOTE - The PMR arrears as above should now be broken down FY wise by method of percentage as explained above under breakdown (TABLE No, 4). The figs worked out are shown below. You are now ready to proceed for knowing the relief if any. Red Figs are inserted in the final chart (TABLE No, 6).
 BREAKING DOWN OF PMR ARREARS (TOTAL = Rs 627661) FY wise


TABLE No, 5 -SPLITTING OF PMR ARREARS FOR COL ZULU

Now prepare your preliminary data chart based on above calculated figures as per under mentioned format (TABLE No, 6). PL DONOT BE AFRAID OF MANY COLNS IN THIS TABLE, SPECIALLY IN CASE YOU DID NOT CLAIM ANY RELIEF EARLIER, IN THE END  you will only need two columns H & M to proceed further. Fill the above details and your T.I's for the previous years as per your ITRs filed in earlier years in the following chart/table (TABLE No, 6):-

TABLE No, 6 (YOUR DATA)



TABLE NUMBE  - 6 - YOUR DATA CHART

NOTE :: Ignore the columns of earlier claims ie coln "D" to "G" in case not claimed , here "C" & "H" will have same values.

     

 You are now ready to prepare your FORM 10-E which will be submitted on line while filing your return. In this you need to calculate Income Tax year wise on the Original/Modified Taxable Incomes with and without the Arrears incl the current year. For this purpose to your convenience we have placed here the income tax rates and the slabs pertaining to the earlier years in Table No, 7.

FORM 10 E -Preparation and Submission

While the relief amount will be reflected by you in the appropriate field in the ITR Form where the amount of relief will get deducted from the total Tax, the pensioners are required to submit FORM 10 E on line in support of their relief claimed from the arrears.  

This form is of two pages as shown below (TABLES 8, 9 & 10). 

      Page one is the summary and verification from the pensioner. 

      Page two is "Annx -1" which contains Particulars and Table A which simply  tabulates the calculations made by you on piece of paper as mentioned earlier. These are shown below in TABLES  8, 9 and 10 reflecting the case of Lt Col Zulu.

   Let us help you with one of the years say FY 2011-12 for Table A of the Form 10E, you will be able to work for other years without any hassle.
Till  FY 2010-11 Col Zulu (Apr 1947 born) was under 65 yrs of age as such not yet a senior citizen. The Sr Ctz age was reduced to 60 yrs wef  FY 2011-12. Our friend therefore is Sr Ctz for Tax purposes wef FY 2011-12 as such  his Income Tax slabs & rates for the FY  2011-12 applicable will be as can be seen in the Table No, 7. :-
      No Tax upto 2.5 Lakh of TI,      10% 2.5 L to 5 Lakh,
     20% 5 to 8 Lakh &
     30% >8L
The  T.I (Table 6) for FY 2011-12 is Rs 464996/- and the arrs of assigned for this year are 82988. Now calculate the Income Tax first for Rs 464996/- (w/o arrs) which works out to Rs 22145/- and for Rs 547984/- ie with arrs (464996+82988= 547984) tax works to be  Rs 35635/- ie Rs 13494/- more than what it is without arrears.  These values  are inserted in Table 'A' of Annx-1 of Form 10 E (TABLE-9) placed below.
     Similarly work out the Taxes and difference  for all other years and complete the Table A of Annx-1.  Once done You have won the battle for yourself.

INCOME TAX RATES - TABLE No,  7


TABLE NUMBER 7 - INCOME TAX RATES FORM 10-E - PAGE 1       This is the beginning part of the form 10 E which will appear on line once you ae in the process of on line submission of this form.  Here one only needs to specify the Total Arrears being assigned for earlier year. This can be even less than the total arrears received by you as you are at liberty to claim for arrears which are more beneficial to you. TABLE NUMBER - 8 - FORM 10 E PAGE 1

TABLE 'A'- Part of Annex 1 

 This table is by far the most important showing the difference in income tax that you would have paid for all the previous years for the arrears had they been received by you during the previous year rather than the current year. The details of working out has been explained above. The figures given in this table by you must be accurate, since these are checked in the Dept with your earlier ITRs.

Prepare this \Table and use the same for on line completion while submitting the Form 10-E along with your ITR.


TABLE NUMBER - 9 - TABLE A OF ANNX-1 OF FORM 10-E FOR ON LINE SUBMISSION SLABS TAKEN--    In the above Form for the years shown are the Financial Years . The subject assessee became senior citizen during the FY 2011-12 as such his calculations from the said FY  on wards are based on  slabs prescribed  for a Senior Citizen and calculations before 2012-13 are for MALE Assessee. Once the above table has been made, your battle stands won by you, what remains is minor completion of columns of Annx-1 on line as below. ANNX - 1 OF FORM 10-E , GIVING THE AMOUNT OF RELIEF UNDER SEC 89(1) - TABLE NUMBER -10 Here on Table- 10 we insert the income (1015080) and the arrears (892437 ie Only up to the extent being assigned to previous years) of current year. The total becomes 1907517 (Tax Calculated on this amount is Rs 404023/-) while the Tax on income w/o arrs ie Rs 1015080/-  is calculated as 128260/- . Hence the diff in Tax on income with and w/o arrs for the current year (Ass Year 2017-18) is equal to Rs 275763/- . Deduct from this the total difference as calculated in Table 'A' (table No, 9) to obtain the amount of relief which is Rs 1,03,418/- a substantial amount for Zulu to take his family for a Hoilday.



TABLE - 10 - ANNX 1 OF FORM 10-E FILLED UP FOR ON LINE SUBMISSION

ON LINE UTILITIES -  

 There are many on line applications available launched by various establishments which file ITRs on behalf of their clients on payment. They are simple to use and need only filling up the arrears spitted as per past years and the applications does all calculations for you and also produces Form 10 E. One can make use of them as well if one can however care should be taken that the calculations are for the age of the assessee. Any mistake if made in the Form the responsibility will be of the assessee and the Income Tax Department may not admit the Relief because of these errors. It will be worthwhile to recheck the outputs by manually calculating as well. 

E-FILING OF ITR AND  ON LINE SUBMISSION OF FORM 10

   ITR - First after you have calculated your data you may prepare your ITR for efiling based on On line Forms ITR-1 or as applicable. These forms has a field to insert the Total amount of Relief claimed. This amount gets reduced from the over all tax liability.

    FORM - 10 E - The E-filing site   https://incometaxindiaefiling.gov.in  caters for on line filling of the form and submission. One can prepare the form on line and save it as draft while you are partially ready and finalise later. After you have logged in with your PAN number and password to your account with them Click on "e-File"   (Refer to following screen shot) select prepare and submit Form on line from drop down, the screen as below will appear. Put in details and continue thereafter as per instructions which pop out,

FIGURE NUMBER-11 - SCREEN SHOT OF E-FILING SITE

   NOTE:-   Once again its a simple affair, the form can be opened on line on e-filing site of the IT Dept after your own logging in, filled up with your data as worked above page wise page  and submitted on line. You get a confirmation of submission.  However please note that the years as they appear there on their site on line  are assessment years and not Fin Years.

NOTE - We will appreciate your inputs on the above POST.

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Sincerely yours,

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