Service tax on notice period pay recovery

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Naveen shori (Querist)
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30 December 2016 Respected Sir

Please guide me upon issue is notice period recovery comes under service tax payment.

 The definition of service as per Section 65 B (44) of the Finance Act, 1994 specifically excludes “provision of service by an employee to the employer in the course of or in relation to his employment”. Therefore, service tax is not applicable on the provision of service by an employee to the employer in the course of employment. However, if an employer is rendering any services to the employee and recovers money from the employee then service tax is payable on such recoveries by the employer.

But

 Recovery of notice pay amount from the employee when resigning from employment - The activities of agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act are declared as services effective 1st July 2012. This activity will get covered under obligation to do an act. Therefore, the employer is liable to pay service tax on the recovery of notice pay amount from the employee.

Please guide me further on this matter.

Warm regards
Naveen Shori

ND (Expert)
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31 December 2016 In this case the service tax is applicable . However many companies are not paying the service tax on notice pay recovered from the employees. If the company till date has not paid service tax on this transactions then don't do anything and wait for GST regime.

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