The Authority of Advance Ruling (AAR) has recently said that Goods and Service Tax (GST) can be levied on various recoveries from the employee for not serving the notice period, according to a Livemint report. This means employees may have to pay GST on quitting their job if they don't serve the notice period mentioned in their offer letter at the time of recruitment.
These recoveries include pay during notice, group insurance, telephone bill, etc. In short, an employee will be liable to pay GST on his/her monthly salary for not serving the notice period, the report said.
The AAR was hearing a case related to Bharat Oman Refineries, a subsidiary of state-owned Bharat Petroleum.
According to a report by Economic Times, the AAR said that the company is "providing a service" to an employee in the case of notice pay, and that’s why GST should be applied on such transactions. The AAR also noted that tax is chargeable on activity viewed as a supply of service under the GST framework. The supply of service could be direct or deemed supply, the report said.
This development comes at a time when companies are facing high attrition rates, as employees are switching jobs.
In a similar order passed by the Gujarat Authority of Advanced Ruling in July 2020, the GST authority had ruled that the applicant is "liable to pay GST on recovery of notice pay" from the employees leaving the company without completing the notice period as specified in the offer letter.
The order, according to the Economic Times report, was passed on an application by Amneal Pharmaceuticals Pvt Ltd, Ahmedabad.
The Authority had said the applicant is liable to pay GST at 18 percent under the entry of “services not elsewhere classified, on recovery of notice pay from the employees who are leaving the company without completing the notice period".
(Edited by : Anshul)
First Published: IST