Is Notice Pay Recovery Chargeable to GST?Vineet Tiwari

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The Tax Publishers GST--Levy of tax Is Notice Pay Recovery Chargeable to GST? Vineet Tiwari The learned author tries to make an analytical study of the issue as to whether notice pay recovery made by an employer from an employee chargeable to GST. The related issue is being discussed in the light of relevant statutory provisions, CBIC clarifications and important judicial pronouncements. 1. What is notice pay recovery The terms of the employment of various organizations contains a condition that if any employee resigns from his job, he is expected to serve a minimum notice period as mentioned in the employment agreement or appointment letter, which may be one month to three months. If the employee does not serve such notice period, the salary of the unserved portion of notice period is retained by the employer, that is called Notice Pay Recovery. In other words, the notice pay recovery is the amount an employee has to pay in case of leaving the organization before the end of the notice period. This amount is directly deducted from the salary payable to the employee. In this regard, the question arises for consideration as to whether the notice pay recovery received by the employer can be regarded as supply chargeable to GST. 2. Relevant statutory provisions under GST As per charging provisions of the Central Goods and Services Tax Act, 2017 (in short "the CGST Act"), GST is chargeable on supply of goods or services or both. The term "supply" is defined under section 7 of the CGST Act according to which the expression "supply" includes -- (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business; (aa) the activities or transactions, by a person, other than an individual, to its members or constituents or viceversa, for cash, deferred payment or other valuable consideration; SUBSCRIBE FOR FULL CONTENT

The Tax Publishers

GST--Levy of tax

Is Notice Pay Recovery Chargeable to GST?

Vineet Tiwari

The learned author tries to make an analytical study of the issue as to whether notice pay recovery made by an employer from an employee chargeable to GST. The related issue is being discussed in the light of relevant statutory provisions, CBIC clarifications and important judicial pronouncements.

1. What is notice pay recovery

The terms of the employment of various organizations contains a condition that if any employee resigns from his job, he is expected to serve a minimum notice period as mentioned in the employment agreement or appointment letter, which may be one month to three months.

If the employee does not serve such notice period, the salary of the unserved portion of notice period is retained by the employer, that is called Notice Pay Recovery.

In other words, the notice pay recovery is the amount an employee has to pay in case of leaving the organization before the end of the notice period. This amount is directly deducted from the salary payable to the employee.

In this regard, the question arises for consideration as to whether the notice pay recovery received by the employer can be regarded as supply chargeable to GST.

2. Relevant statutory provisions under GST

As per charging provisions of the Central Goods and Services Tax Act, 2017 (in short "the CGST Act"), GST is chargeable on supply of goods or services or both.

The term "supply" is defined under section 7 of the CGST Act according to which the expression "supply" includes --

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business;

(aa) the activities or transactions, by a person, other than an individual, to its members or constituents or viceversa, for cash, deferred payment or other valuable consideration;