Service tax on short notice recovery may be payable by employers and can be collected from employees.
The article contends that short notice recoveries may be taxable because they can qualify as a declared service of "agreeing to tolerate an act or a situation" when an employer receives consideration for early termination; alternatively, taxation may not apply if no "activity" is performed. Practically, Section 68(1) makes the employer liable, allowing collection from the employee if a contract states tax is payable extra, otherwise the employer must remit tax on an inclusive valuation basis. The author recommends treating such recoveries as potentially taxable and adopting a precautionary compliance approach. (AI Summary)