Employee liable to pay GST on the salary received against notice period: AAR

                    

Employee liable to pay GST on the salary received against notice period: AAR

The AAR decision states that GST will be applicable to the recovery of various employees, including telephone bills, group insurance, and notice period salaries.

The issue of high attrition rates has become important in the corporate world amid the talent war between companies. However, another important point of debate between tax authorities and companies is the tax treatment on the wages of employees serving the customary notice period.

A recent decision by the Central Board of Indirect Taxes and Customs Authority of Advance Ruling (AAR) in the case of Bharat Oman Refineries states that GST will be applicable to the recovery of various employees. ,

These include telephone bills paid by companies, group insurance of company employees, and payment of salaries in lieu of notice period, The Economic Times reported. As per the definition of GST, the government levies a specific tax on any activity viewed as "supply of service". These services can be direct or indirect.

The ruling held that the company provides services to the employee in terms of notice payment, and GST should be levied on that.

In a similar order passed by the Gujarat Authority of Advance Ruling in July 2020, the GST authority had ruled that the applicant company is "liable to pay GST on recovery of notice payment" from employees leaving the company as specified. An appointment letter is issued as per the contract entered into between the employer and the employee.

The order was passed on an application by Amneal Pharmaceuticals Pvt Ltd, Ahmedabad. The authority had said that the applicant is liable to pay 18 percent GST under the entry "services not classified elsewhere" on recovery of notice salary from employees who leave the company without completing the notice period.

The Authority after going through the case-law of Gujarat State Fertilizers and Chemicals Limited (2016) came to the conclusion that it was held that termination of employment is also treated as employment service not liable to service tax. should go. It also perused the decision of Allahabad CESTAT in the case of HCL Learning System vs CCE, Noida, which held (November 2019) that when the amount is recovered from the salary already paid, such amount shall be charged to service tax. will not be subject to Salaries are not subject to tax.

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