Tax on reimbursement of Notice Pay Deduction ?

4174 views 2 replies

Anjana

M.Com

52 Points Joined March 2007

Dear Members,

I have a query regarding reimbursement of notice pay period deduction. If the new employer reimburses the employee the entire notice pay period amount that was deducted by his previous employer, will the reimbursed amount be taxable? Or will it be treated as reimbursement of expenses incurred (like reimbursement of any other expenses eg. tour expenses) and will not be taxable(since it is not an income for the employee and he stands to gain nothing from this transaction )?

Please also mention releveant sections of Income Tax Act as well as case laws which can be used as reference in such a scenario.

Thanking you,

Anjana

Replies (2)

Ramasubbu K

Sr.GM - Finance & Company Secreta

685 Points Joined July 2007

Last week the same query was raised and clarified by a Tax expert in 'The Hindu' column. He clarified that the Notice period deduction has to be reduced from the income of the assessee as he has not earned that money and he can claim the tax refund to the extent relates to that amount which was deducted at source. In line with that, though the amount was reimbursed by the new employer, it is an income of the assessee and has to be taxed in the hands of the assessee. Regards K.Ramasubbu