GST on Notice Pay

Is there any GST on Notice Pay recovery from employees ?

Employees who resign from their job are expected to serve notice period as mentioned in the employment contract. If the employee does not serve such notice period, the salary of the unserved portion of notice period is. retained by the employer

Example : if the Employer was to pay  salary of Rs 50,000 for a month and the unserved notice period is 15 days then then the employer will pay only Rs 25,000 as salary to employee.

The payment of Rs 25,000 by the employer consists of two transactions

– Salary payable by the employer Rs 50,000 (Expense ) – Consideration to employee for employment covered under Schedule II of CGST Act and hence not liable to GST;

– Notice pay recovery of Rs 25,000 (Savings in expense which can be viewed as income to the employer) – Consideration to the employer for “tolerating the act” of the employee to not serve the notice period which was the employee’s contractual obligation. This transaction is liable to GST.

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