Tax Liability on

[Rahul Bagaria]

Hi

My current employer has paid the 'Notice Pay' to my previous employer. Wanted to know the tax liability status in the hands of the employee under 2 options:

1 .If the payment is directly made to the previous employer by the current employer

2. If the amount is paid directly to the employee to be by the current employer, which the employee will directly pay from his own pocket to his previous employer

Will under both the circumstances, the employee will have to bear the tax liability.

Thanks

[CAGOPALJI AGRAWAL]

Though it is not the real income but somewhat in the nature of surrender of salary. If the previous employer deduct the same in salary paid - form 16 then no further probelm would arise otherwise the taxability would depend upon the term of employment and AO would generally not exclude notice pay from salary income.

AI Summary

Notice pay tax treatment: treated as surrendered salary; employee liable unless previous employer reports deduction on salary certificate. Notice pay paid to a previous employer or reimbursed by a current employer is treated in substance as a surrender of salary and therefore prima facie taxable as salary income. If the previous employer deducts or reflects the amount in the salary documentation provided to the employee, further tax issues are unlikely; otherwise taxability depends on the employment terms, and the assessing officer will generally not exclude notice pay from salary income.