Employees who quit their job without serving the notice period may have to pay goods and services tax (GST) on the notice pay —the amount paid to the employer for not serving the notice period — according to the Authority of Advance Ruling (AAR).
GST may be applied on the telephone bills paid by the employers, group insurance, salary in lieu of the notice period and other recoveries.
The ruling is based on the argument that the employee is giving a service to the employer via the notice pay, and therefore, it attracts 18 per cent GST. That is because, as per the GST guidelines, tax is imposed on any activity which amounts to offering of service, whether direct or supplied indirectly.
Since employees are not registered payers of GST, it is the employer’s responsibility to pay GST on that amount, on the recoveries, through a reverse charge mechanism.
At a time when attrition is on the rise, there is a shortage of quality talent across the country, especially in the information technology space. Therefore, many employers are actually willing to pay for a good talent’s notice period in a bid to hire them at the earliest.
Job hoppers need to carefully go through their appointment / offer letters, where the notice period is usually mentioned. It can be a month or two or even three months.