Payment of Servcie Tax on Notice pay recovery by employer.

[Ashwin Garg]

Sir,

As per letter of appointment, employees has to serve three (3) month notice period incase of resignation but if they do not serve entire three (3) months period, then the employer company deduct as 'notice pay recovery' equal to three (3) months basic salary or basic salary for balance period from full and final settlement of employee.

querry :

1) Whether employer company need to pay service tax on notice pay recovery ?

2) Whether the notice pay amount so recovered will be treated as including Service Tax or Excluding Service Tax ?

3) Whether the employer company need to raise an Invoice to resigned employee ?

4) Under which head the employer company should deposit Service Tax?

5) Under which category the service should be incorporated in Service Tax Registration Certificate ?

Thanks in advance.

Ashwin Garg

AI Summary

Debate on Employer's Obligation to Pay Service Tax on Notice Pay Recovery: Consensus Leans Towards Non-Applicability An employer's obligation to pay service tax on notice pay recovery was debated in a forum. The primary question was whether the employer should pay service tax on the notice pay deducted from employees who do not serve their full notice period. Most participants, including Pawan Kumar, Mariappan Govindarajan, and Akash Deep, argued that no service tax is applicable since no service is rendered. They emphasized that such deductions are not considered a service transaction. However, Ashok Patil and Naveed S suggested that it might be taxable under declared services, as it could be seen as an obligation to tolerate an act. The overall consensus leaned towards non-applicability of service tax.