Sir,

I received increased salary due to error in granting of additional increment by the employer in September 2008. Now they have rectified their order and recovering the arrear which was paid in previous financial year. (September 2008 to April, 2009)

I have paid the tax on that increased income in previous financial year. Now my questions are
a) whether that arrear which I received in previous financial year (2008-09) is to be reduced in total salary of this financial year (2009-2010)

b) if yes, under what section
c) if no, under what section
d) or I have to recover the tax from the tax authorities.

Thanks
RAJESH RAWAL

Rajesh:

The BEST way to handle this is for your employer to issue you a corrected W-2 (Form W-2C), and then you file a Form 1040X to amend your return.

Pursue this method of correction, as it then corrects all of the other tax systems (FICA, employment, etc.) as well.