7th CPC Latest News: Govt to Impose Income Tax on New Allowance

7th CPC Latest News: Govt to Impose Income Tax on New Allowance


New Delhi: The new allowances under the 7th Pay Commission will come under the ambit of income tax. This decision is not likely to go down too well with the central government employees who have already started protesting about the manner in which allowances were rolled out.

Allowances under income tax 

According to a Senior Finance Ministry official, the new allowances would come under the ambit of income tax. Income tax will be imposed on the allowances which were granted from the financial year 2017-18. 

What Finance Bill 2017 proposed

As per reports, tax treatment on basic salary, bonus and allowances among others, for both government and non-government salaried employees was proposed in the Finance Bill 2017. However, in the past, central government employees union demanded exemption from income tax on new allowances under the recommendations of the 7th Pay Commission.

The government felt that if all allowances excluding basic salary of central government employees are made tax free, it would be discriminatory to others. 

Employees' demand not met 

Central government employees had demanded an exemption from income tax on new allowances. The employees had also demanded that the allowances come into effect with arrears starting July 2016. However the Union Cabinet last month implemented the 7th Pay Commission recommendations and said that the allowances would come into effect from July 2017 onwards, much to the dismay of the central government employees.

The government, as per the 7CPC recommendations, implemented the new pay structure from January, 2016 for central government employees and the allowances, the compensatory perks for all employees, from July 1, 2017.

Although the unions demanded implementation of the allowances with retrospective effect from January 2016, there is a usual practice to pay the allowances from the date of implementation.

According to a Senior Finance Ministry official, the government had no plan to give allowances in arrears since beginning. However, this deeply annoyed the central government employees.
Noteworthy that, keeping in mind the salary and allowance hikes, Finance Minister Arun Jaitley allocated Rs 1.02 lakh crore in the 2016-17 Union budget for paying the central government employees.

According to the senior official, delay in the implementation of allowances was chiefly because of the financial gains of the government and reportedly saved nearly Rs 40,000 crore.

The bone of contention between central government employees’ unions and government, the House Rent Allowance (HRA), which unions demanded at the rate of 30 per cent, 20 per cent and 10 percent of basic pay with arrears.

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