AARs give divergent rulings on notice pay recovery by employers

No GST on such collections in Maharashtra, regarded as service in MP and taxed, money received from employees for medical insurance to non-dependent parents to draw GST too

If a company is in Maharashtra, it need not pay goods and service tax (GST) on the money recovered from employees who leave without serving the notice period. But that may not be the case in Madhya Pradesh.

Syngenta India Limited, a company engaged in the manufacturing of pesticides and various types of seeds, recovers money from employees if they leave the job without serving the complete notice period.

The company offers various incentives to its employees as a part of the employment policy like a group insurance policy, parental insurance policy. For the same, it recovers the amount from employees.

The company approached Maharashtra authority for advance ruling (AAR) on whether GST would be applicable on the amount recovered from employees by way of parental insurance and notice pay recovery.

The AAR ordered that GST would not be leviable on these kinds of recoveries.

Earlier, in a matter related Bharat Oman Refineries Ltd, Madhya Pradesh AAR held that “relieving an employee without notice period or by accepting a shorter notice period” is a supply of service and hence GST is applicable on payment of notice pay by an employee to the employer.

It had also held that the money received from employees for medical insurance to non-dependent parents would draw GST.

Sandeep Sehgal, Partner-Tax, AKM Global, said the issue of GST on notice pay recovery is becoming a vexed issue due to  divergent rulings.

"The definition of service under the GST laws is a very wide one and the fact that services provided to employees is considered a deemed supply has further exacerbated the issue. The GST Council should look into the issue in the next council meeting and should clarify the intent, which can be incorporated into the statute,” he said.