GST Applicable on Salaries received during Notice Period: AAR

GST Applicable on Salaries received during Notice Period: AAR

An Advance Authority of Advance Ruling (AAR) has ruled that the Goods and Services Tax (GST) applies to various employee recoveries. According to the most recent ruling, the tax will be levied on notice pay, group insurance, and phone bills.

The AAR was deliberating on a case involving Bharat Oman Refineries, a subsidiary of state-owned Bharat Petroleum. The AAR has clarified in its most recent ruling that the employee is required to pay GST on salaries received during the notice period.

The AAR stated that in the case of notice pay, the company is “providing a service” to the employee, and thus GST should be applied to such transactions.

The AAR also reportedly stated that under the GST framework, tax is chargeable on activity viewed as a supply of service. Further, the service supply could be direct or deemed.

The critical AAR ruling comes at a time when all major corporations are dealing with high attrition rates, as employees continue to switch firms in search of a better package and benefits.

The ruling, which clarifies that GST will be levied on notice pay, will also invite more scrutiny from the taxman, who will now have a better understanding of the issue.

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