Income tax on notice period shortfall pay cut

[Guest]

Hello,

I left my previous employer on 13th April 2018 and communicated to them that I will not be able to complete my full notice period (2 months) because of which they cut an amount (Rs 23077) for notice period shortfall from my Full and Final settlement. But they added this amount in full in my Form 26AS as a part of the amount paid to me, which I did not receive at any point of time. I communicated this to them via email. After many continuous and multiple reminders, I received a reply from them where they said that they will not be able to correct my Form 26AS.

The impact here would be that I will have to show this amount in my income in financial year 2018-19 and will have to pay tax on the amount which I did not receive and which was not a part of my salary.

Could someone please confirm if this amount is taxable? I searched on the internet and saw somewhere that according to the verdict of Income Tax Appellate Tribunal(ITAT), this income is not part of my taxable income.

Thanks,
Vaibhav Mittal

[DR.MARIAPPAN GOVINDARAJAN]

If you are having evidence for recovery of the amount by the employer as short fall of notice, you may show the income at reduced rate and claim the excess tax recovered by the employer in the IT form.

[Guest]

Hello sir,

My previous employer has not deducted any tax on that income and showed that amount in full in my Form 26AS.

Can you please tell me how to show the income at reduced rate?

Thanks,
Vaibhav Mittal

[DR.MARIAPPAN GOVINDARAJAN]

In the query you have mentioned as - I will not be able to complete my full notice period (2 months) because of which they cut an amount (Rs 23077) for notice period shortfall from my Full and Final settlement. But they added this amount in full in my Form 26AS as a part of the amount paid to me, which I did not receive at any point of time. - but now you told that your previous employer did not deduct tax and show it in Form 26AS.

Which is correct?

[Guest]

Hello sir,

Both things are correct. They entered amount in my Form 26AS and did not deduct any tax, so I will have to pay that tax when I file IT return in July.

[DR.MARIAPPAN GOVINDARAJAN]

Without paying the tax deducted at source no entry will be possible in Form 26AS. If TDS appears in Form 26AS no tax is need to be paid by you.

AI Summary

Tax treatment of notice period shortfall: employer reporting in tax records can create taxable exposure unless corrected or evidenced otherwise. Issue: an employer withheld an amount for notice period shortfall from the employee's final settlement but listed the same amount in Form 26AS as paid to the employee without deducting tax. The taxpayer fears inclusion of that amount as taxable income. Advice given: if documentary evidence establishes the recovery by the employer, the taxpayer may present the amount at a reduced rate and claim any excess tax via the income tax return; adviser also observed that Form 26AS entries normally derive from TDS credits, so factual correction or supporting evidence is necessary to exclude the amount from taxable income.