Is Service Tax Really Required on Employee Full and Final Settlements? Seeking Advice

Dear All,

Two days ago, one of our service tax consultants informed us that service tax will be applicable on the full and final amount of employees. It is the employer's responsibility to submit the service tax on the full and final amount.

Please advise me on the above-mentioned matter.

Regards,
Ankur

As per the amended service tax negative list, the relationship between the employer and employee ends after the resignation of the employee. Now, the employer works as a service provider to the ex-employee. In this case, the relationship between the employer and employee will be that of a service provider and service receiver. Therefore, service tax is applicable on the full and final amount.

If a person is working on a contract basis as a professional in a Ltd. Company and draws monthly professional fees amounting to Rs. 62,000/- after the deduction of TDS, is he liable to pay service tax or obtain registration under the service tax act?

Your concern is right, but it only applies to outsourced service providers. Here, I am referring to employees who are on the company's payroll and decide to resign from their current position. In such cases, the company will provide the employee with their full and final amount after they have resigned.

Regarding the final settlement to the employee, it is not applicable. I believe the final settlement being referred to here includes PF/Gratuity, leave encashment, bonus, etc., correct? In that case, your consultant is mistaken. There is no "service provider" and "service receiver" relationship between the employer and the employee. Consultancy is a separate matter.

Best regards,
Kumar S.