The government on Wednesday said it would tax only 40 per cent of salary arrears to be paid to central government employees in the current fiscal on implementation of Sixth Pay Commission recommendations.

Generally speaking income earned in a year is taxed in that particular year, official sources said.

A section of the media had reported that the entire amount of arrears would attract tax this fiscal.

As per the notification issued by the government in August, central government employees will get 40 per cent of arrears during the current financial year and the remaining amount in the next financial year.

Government instructions issued on August 30, 2008, regarding fixation of pay and payment arrears consequent to implementation of the Sixth Central Pay Commission recommendations clearly states that in authorising the arrears income tax as due may also be deducted and credited to the government.

The arrears with effect from January 2006 would cost Rs 29,373 crore (Rs 293.73 billion). Of the arrears, 40 per cent would be paid during the current year to the 50 lakh (5 million) employees of the central government.

The revised pay scales will add Rs 4,500-5,500 crore (Rs 45 -55 billion) to the government exchequer this fiscal in the form of personal income tax.