I am expecting payment of arrears of salary pertaining to the period 2006 to 2013 during the current financial year. To reduce the incidence income tax in the year, is it possible to apportion the amount to the respective previous years cited above? If yes, what is the procedure? Otherwise, what is the alternative?

R Rao

According to provisions of the Income tax Act, 1961 (the Act), arrears of salary received by an employee is taxed in the year of receipt if the same was not taxed earlier on due basis. However, an employee can claim relief under Section 89 of the Act, where an assessee is in receipt of arrears under the head ‘salary’, due to which his total income in that particular year is taxed at a higher rate.

Relief prescribed in such a situation is the difference of incremental tax arising on such arrears in the year of receipt and the year to which such arrears belong. In a nutshell, the assessee is required to pay the tax, which is minimum tax payable in the current year or the additional tax, had that income been taxed in the year to which it belongs.

Accordingly, in your case, you may claim such relief while filing your tax return for financial year 2015-16 in which you receive such arrears of salary.

I have inherited the balance in the savings bank accounts of my deceased wife. I will also get the monthly family pension from her employer. How would this be treated for tax purposes?

Ayyar

According to the provisions of the Income-tax Act, 1961, if any asset is received without consideration, the fair market value of which exceeds ₹50,000, the whole of the aggregate fair market value of such property is chargeable to tax. However, this provision does not apply in case of transfer of assets under a will or by way of inheritance. The income, however, received post inheritance by the transferee from such assets is treated as the income of the transferee and is taxed in his hands.

Since you have inherited the balance in savings bank account from your wife, the same shall not be taxed in your hands upon inheritance. However, any income earned by you from investing such funds shall be taxable in your hands.

Further, the family pension received by you on death of your wife shall be taxable in your hands under the head “Income from other sources”. A sum equal to 33.33 per cent of such pension income or ₹15,000, whichever is less, is allowed as a standard deduction from such income.

The writer is a practising chartered accountant. Send your queries to taxtalk@thehindu.co.in

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