When you want to leave a job, you have to complete serving the notice period. However, few companies will give an option to leave the job immediately if the employee is ready to pay compensation for the notice period. This action is called the recovery of pay.
Recently, the Gujarat Authority of Advance Ruling (AAR) held that an employee leaving a company without completing their notice period has to pay 18% GST on the recovery of pay. An employee of Ahmedabad-based export company “Amneal Pharmaceuticals” sought an advance ruling from Gujarat AAR on leaving the job without serving the three month notice period.
The question that the employee rised was “Whether the applicant is liable to pay GST on the recovery of notice pay from the employees who are leaving the company without completing the notice period as specified in the appointment letter issued as per the contract entered between employer and the employee?”.
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The AAR order stated that the applicant is liable to pay GST at 18% to recover notice pay from the employees who are leaving the company without completing the notice period. It is to be noted that the contract between the employee and employer should specify the notice period in the appointment letter.
Authority said that the action of leaving a job without serving notice period comes under the “tolerating an act” which is covered under clause (e) of schedule II. Also, the recovery of the amount will be instead of “breach in serving the stipulated notice period”. The AAR further added that the recovery amount would not be covered under employee exemptions as per the GST Act.
For any clarifications/feedback on the topic, please contact the writer at dvsr.anjaneyulu@cleartax.in
DVSR Anjaneyulu known as AJ, is a Chartered Accountant by profession. Loves to listening to music & spending time with family and friends.
