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Deduction of notice period dues

Raj Thakkar (ARTICLE) (371 Points)

26 July 2023

If at the time of resignation, an assessee makes payment to employer towards notice period dues or refund of benefits received, then whether such payment is deductible from salary Income while filing return of income.?

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9 Replies

Nikita Agarwal (Semi Qualified CA) (3208 Points)
Replied 26 July 2023

These payments are typically not part of the taxable salary income as per the Income Tax Act, they may not be eligible for deductions while filing the return of income. Instead, such payments are treated as separate financial transactions between the employee and the employer, and their tax treatment is not covered under salary income. section 15 of the IT act does not have provisions for deductions related to payments made to the employer in cases of resignation.

Madhavan R (78 Points)
Replied 27 July 2023

Though the notice pay out is not shown in form 16 it forms part of salary and deductible as others in the ITR filing
refer to ITAT Ahmedabad judgement on this one
I have made a filing based on actual salary received ( gross -notice pay amount) and filed a refund claim last year successfully

Raj Thakkar (ARTICLE) (371 Points)
Replied 27 July 2023

Respected Sir/Madam

Thank you very much for your reply. Please guide me where should I mention the figure of notice pay amount to get the deduction.
or
The net figure of salary after deducting the notice pay amount should be disclosed as salary income?

Regards.

Madhavan R (78 Points)
Replied 27 July 2023

Take the net figure after notice pay out and mention the same in deduction others column descripttion

You keep the pay out debit details bank stt or any other acknowledgement of the employer as a proof to submit upon querying

the judgement ITAT I shall attach later on

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Raj Thakkar (ARTICLE) (371 Points)
Replied 27 July 2023

Thank you sir for your response. Please help me to understand this:

So, I should mention net figure after deducting the amount of notice period dues in the field salary as per section 17(1).

But please tell me "deduction others" as mentioned by you is available under which section/schedule?

Musrath Shaik (175 Points)
Replied 27 July 2023

The deductibility of payments made by an assessee (employee) to the employer for notice period dues or refund of benefits received upon resignation can vary depending on the tax laws of the specific country and its treatment of such payments. As my knowledge is based on information up to September 2021, I will provide a general answer, but it's essential to consult with a tax professional or refer to the latest tax laws in your country for the most accurate and up-to-date information.

In many countries, the deductibility of such payments from salary income may depend on the nature of the payment:

Notice Period Dues: If an employee resigns but is required to pay the employer for not serving the full notice period as per the terms of the employment contract, the payment made for notice period dues is generally not deductible from salary income. This is because it is considered a personal expense arising from the breach of the employment contract and not directly related to the employee's duties or responsibilities.

For further more detailed information on this topic visit: Flow of Notices under GST

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