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Employees skipping notice period may have to pay GST on final salary; check details

Experts suggested that employees should carefully read the offer letter while joining a company, as they would be required to complete the notice period as mentioned in it to avoid paying GST on the final salary.

December 03, 2021 / 05:05 PM IST
Representative Image (Source: ShutterStock)

Representative Image (Source: ShutterStock)

Employees who choose to skip their full notice period while quitting a job may have to pay goods and service tax (GST) on their final salary, a report said on December 3 citing a recent order issued by the Authority of Advance Ruling (AAR).

The AAR, while ruling in a case of Bharat Oman Refineries, said GST can be levied on certain recoveries made from the employee during the customary notice period, the Economic Times had reported on November 30.

The recoveries which are applicable for tax, as per the order, include notice pay, group insurance and telephone bill, the newspaper said.

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According to the AAR ruling, the above recoveries are taxable as the company is "providing a service" to an employee, the report said.

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Citing this ruling, experts who spoke to the Live Mint said the final salary drawn by an individual from a company will also be applicable for GST.

"The employer can charge 18 percent GST on the total recoveries accruing on the employee leaving the organisation without serving the notice period," the newspaper quoted SEBI registered tax and investment expert Jitendra Solanki as saying.

Solanki, however, explained that the employee is liable to pay the GST only when he has not served the notice period. When the notice period has been completed by the employee, it is the employer who will have to pay the GST on the recoveries made during this period, he was reported as saying.

Experts suggested that employees should carefully read the offer letter while joining a company, as they would be required to complete the notice period as mentioned in it to avoid paying GST on the final salary.

The offer letter usually mentions the notice period from one to three months.
Moneycontrol News
first published: Dec 3, 2021 05:05 pm

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