Leaving job without serving notice period? Pay 18% GST on recovered pay

An employee of an Ahmedabad-based company who quit the job without serving the mandatory 3-month notice has been asked to pay GST on the pay recovered for the 3 months.

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Henceforth, employees who quitting the job without serving the notice period will have to pay 18 per cent goods and services (GST) tax on the pay recovered for the notice period.

The Gujarat Authority of Advance Ruling (AAR) was hearing the case of an employee of Amneal Pharmaceuticals — an export-oriented unit that manufactures pharmaceutical goods — who had quit the job without serving the notice period. As per the AAR ruling, 18 per cent GST will be applicable for the employee, on the pay recovered for the notice period.

The concerned employees’s appointment letter clearly mentions that the the employee will have to give a three-month notice to terminate the contract. If an employee fails to do so, the Company has the right to recover the notice pay from the agreed salary amount to make up for the loss incurred by the Company.

Here, it has been treated as a case of an employee failing to perform his duties as promised (according to the terms of contract).

However, the ruling does not really imply that all exits would be treated the same way. While GST is applicable, the decision will vary from company to company and region to region, based on the terms and conditions of the employment contract.

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