No GST To Be Applied On Salary During Notice Period.
Yes!
AAAR has overturned an earlier ruling by AAR that declared the Goods and Services Tax (GST) should apply to payments made instead of employee notice periods.
No GST On Notice Period Pay
An Advance Authority of Advance Ruling (AAR) had earlier said GST would be applicable on employee recoveries such as notice pay, group insurance and telephone bill.
AAAR has now reversed the ruling. “Merely because the employer is being compensated does not mean any service has been provided to the employer or the employer has tolerated any act of the employee for the premature exit,”
AAAR ruled.
“The Appellate Authority has rightfully reversed the earlier decision, and has once again emphasised on the doctrine that ‘supply’ does not contemplate or encompass a unilateral act, i.e. there has to be a quid-pro-quo, for a transaction to qualify as supply,”
Harpreet Singh, Partner, Indirect taxes at KPMG in India.
A few days earlier according to the Livemint report, GST can be charged on different recoveries from the employee for not serving the notice period, according to the Authority of Advance Ruling (AAR). During any job interview, the HR team gives instructions regarding the notice period. So in case if an employee doesn’t serve the notice period, the person can never return to the same company in the future.
Pay during notice, group insurance, phone bills, and so on are examples of these recoveries. In other words, if an employee does not serve the notice period, he or she will be responsible to pay GST on his or her monthly wage, according to the report.
GST Framework For Any Supply Of Goods Or Services
Any supply of products or services, even if it has no monetary value, should be taxable under the GST structure.
“Unless there is an explicit agreement between the parties for the provision of identified goods/ services, mere payments between them should not constitute a supply,” said Singh.
While AAR judgements only apply to the corporation who applied for them, tax authorities often use them as precedent, especially if they may help them collect more money.
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