- Wealth PMS
Remember when the government decided to up employee salaries by some 20%, and even back date it? Well, it turns out they’re going to get this year’s amount back as tax.
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 on Diwali and Eid, 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 amount of 40% arrears to be paid to them this year. Senior bureaucrats will suffer the most as their tax would be topped with a surcharge of 10%, applicable on an income of Rs 10 lakh and above.
This is a political coup. Elections are next year. This government has the fear – a very sound one – of not being voted back into power. So they announce this wage increase – but then take it all back in year 1, so they don’t really have to pay out anything. The next government has to deal with what happens in year 2, no?
Think about bank loan waivers. Implemented over multiple years, when this government will bear it only for one year. (Perhaps this is accounted someplace)
Still, what it’s going to do is: Nothing. Whatever people get, they’ll pay out as tax and wait till next year. Perhaps in an economic sense that is better, since next year may be a horrendous time for liquidity and people will need the money. But I hope they’re not letting the government decide that.