The Gujarat Authority for Advance Rulings (GAAR) has held that an employee exiting a company without completing their notice period would be liable to pay 18 percent goods and services tax (GST) on the recovery of the pay. This was in a case pertaining to an Ahmedabad-based export company Amneal Pharmaceuticals that sought advance ruling on the issue of exit from their job without serving the three-month notice period.

However, industry experts have said that while this shows that notice pay is ‘not GST exempt’, the payment of this tax would differ based on the employment terms and interpretations by the tax authorities.

MS Mani, Senior Director, Deloitte India told Moneycontrol explained that on which transaction goods and services tax is applicable cannot be certified in the GST law because there are far too many transactions all over a country. GST law provides general guidance.

“Advance Ruling authorities interpret that law in a specific situation. In this case, they have interpreted it to say that since serving the notice period was a service, the notice pay of the employee should be attracting GST,” Mani added.

What is to be noted is that this was a ruling in a specific case and may not the same for all incidents where a corporate employee misses out on serving the notice period.

So even while GST is applicable, depending on the employment contract and terms set by individual companies, a decision will be taken.

This off course is a ruling from Gujarat Authority for Advance Rulings (GAAR) and applicability in all states has to be factored in by employees quitting without serving notice period and what happens if employers waives notice period.

From India, Pune

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