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Is GST applicable for skipping notice period and canteen food? It’s a yes and no

A recent decision by the Gujarat Authority for Advance Rulings has ruled in a case for imposition of 18 percent GST on the recovery of notice pay from employees who skip serving this period. A similar 5 percent GST is also applicable on food sold in canteens.

January 13, 2021 / 06:38 PM IST

The Gujarat Authority for Advance Rulings (GAAR) has held that an employee exiting a company without completing their notice period would be liable to pay 18 percent goods and services tax (GST) on the recovery of the pay.

This was in a case pertaining to an Ahmedabad-based export company Amneal Pharmaceuticals that sought advance ruling on the issue of exit from their job without serving the three-month notice period.

However, industry experts have said that while this shows that notice pay is ‘not GST exempt’, the payment of this tax would differ based on the employment terms and interpretations by the tax authorities.

MS Mani, Senior Director, Deloitte India told Moneycontrol explained that on which transaction goods and services tax is applicable cannot be certified in the GST law because there are far too many transactions all over a country. GST law provides general guidance.

“Advance Ruling authorities interpret that law in a specific situation. In this case, they have interpreted it to say that since serving the notice period was a service, the notice pay of the employee should be attracting GST,” Mani added.


What is to be noted is that this was a ruling in a specific case and may not the same for all incidents where a corporate employee misses out on serving the notice period.

So even while GST is applicable, depending on the employment contract and terms set by individual companies, a decision will be taken.

Delhi-based HR consultant Nishant Tiwari who works with companies on developing employment contracts said that it is ideal for employees and employers to sit across and discuss all matters including GST.

"If GST is applicable, then the employee must be informed in advance of the consequences of not serving the notice period. At the end, if the employer is bearing the 18 percent GST, it will be recovered from the employee," he added.

For example, if the notice period pay is Rs 2 lakh, then the 18 percent GST would mean an additional burden of Rs 36,000. This would be recovered from the employee when they skip the notice period since it amounts to a person promising 'a service' and not offering it.

So employees must be doubly-sure about the payment terms and sign the offer letter only after careful verification. This will help avoid penalty payments on account of GST.

What about food served in the office canteen?

There is also a rising debate about whether GST will be applicable on corporate services like canteen food served to employees on a cost.

Mani said that in another recent decision, it was decided by GAAR that the employer is liable to pay GST on canteen food served to its staff for which the latter pays a charge.

The GST on canteen food is set at 5 percent. This would mean that this tax payable by the employer to the GST authorities will be recovered from the staff in the form of higher prices.

According to Section 46 of the Factories Act, 1948, any factory employing more than 250 workers is required to provide a canteen facility to its employees.
M Saraswathy is a business journalist with 10 years of reporting experience. Based in Mumbai, she covers consumer durables, insurance, education and human resources beat for Moneycontrol.
first published: Jan 13, 2021 06:38 pm

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