Service tax applicability to notice pay to company by employ

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This query is : Resolved

Chaitanya (Querist)

16 August 2012 Hi,

I would like to know whether service tax is applicable in the following scenario

I am leaving my organization. The notice period is 3 months. I have opted to leave early. Thus I need to pay the equivalent salary to my company. My company is saying that service tax is application to this notice pay also.
Since there is no commercial transaction and transaction in within organization, whether service tax is applicable to me.
Thanks in Advance.

Amol S Joglekar

Amol S Joglekar (Expert)

16 August 2012 Your company is WRONG. Please ask them the notification number under service tax and let me know.

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RENGARAJ R.K

RENGARAJ R.K (Expert)

16 August 2012 According the Service tax new clarification, One of the ingredients for the taxation is that such activity should be provided for consideration. Where the employees pays for such services or where the amount is deducted from the salary, there does not seem to be any doubt. However, in certain situations, such services may be provided against a portion of the salary foregone by the employee. Such activities will also be considered as having been made for a consideration and thus liable to tax. This is an income in the hands of Employer and only Employer has to pay the service tax.

Any additional consideration received from employee is taxable now.

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Chaitanya

Chaitanya (Querist)

17 August 2012 1) Dear Mr. Rengarajan,

Thanks for the reply.

but I would like to know suppose I have to pay rs 10000 to my company as notice pay. Whether I should pay 10000 + Service tax?

2) Dear Mr. Jogalekar,

Thanks for the reply. I have requested my company to provide written evidence of such applicability.

Thanks,
Chaitanya Kulkarni

RENGARAJ R.K

RENGARAJ R.K (Expert)

17 August 2012 Only 10,000/- and as explained, the organisation has to pay service tax on this amount. It is not correct to collect the tax from you.

Chaitanya

Chaitanya (Querist)

17 August 2012 Dear Sir/s,

I got following reply from our tax consultant.

As per the new service tax law post Neagative List era services provided by Employee to Employer is exempt however services provided by Employer to Employee is now taxable hence the service tax is liable to be paid on the same. In the current situation as ... is receiving amount from employee who is not serving notice period hence it is deemed to be a service provided by .... to said employee hence the same is taxable. This contention also finds support from circular issued by the government attached herewith (Para 9).

Further, reverse mechanism will not apply in the present case as the ... is not a body corporate (Pvt. Ltd. Or Public Ltd. Company) hence the .... will not bare the liability.
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Further to this they have sent me draft circular on the leviability of service tax on staff benefits and employment related transaction.

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