New Delhi: For lakhs of central government employees looking forward to receiving 40% of the accumulated arrears on their increased salary next month, in time for some festive spending, here’s a dampener. The government has decided to levy tax on the entire amount of arrears — 60% of which will be paid next year — in the current fiscal itself.

For most employees, the decision would virtually wipe out almost the entire 40% arrears to be paid to them this year. Senior bureaucrats will suffer most as their tax would be topped with a surcharge of 10%, on income of Rs 10 lakh and above.

A senior finance ministry official said the surcharge to be paid by officers of the rank of joint secretary and above ranges between Rs 24,600 and Rs 52,500. The impact would be less on the lower grades.
The Centre had last month announced an average increase of 21% in salaries of its employees. The hikes, effective from January 1, 2006, would burden the exchequer by more than Rs 17,500 crore annually while the arrears alone account for more than Rs 29,000 crore.