Service tax

As per section 66E of the Finance Act, 1994, tolerating an act or refraining from an act is a declared service. Since, the employer tolerates the act of the employee to exit before the end of the notice period, it becomes a service provided by the employer to the employee. The notice pay received from the employee is the consideration received by the employer for the said service. Therefore, the notice pay is taxable. Further, the definition of 'service' as per section 65B(44) excludes the activities performed by the employee for the employer in the course of employment. It does not exclude the activities performed by the employer for the employee, for which a consideration is received/receivable by the employer. Thus, notice pay is taxable under Service Tax.