Exit Without Serving Notice Period to Attract 18% Tax

February 10, 2021

HR Policy India Update: The Gujarat Authority for Advance Rulings has held that an employee exiting a company without completing the notice period would be liable to pay 18% under the Central Goods and Services Tax Act (CGST) on recovery of pay for the duration of the notice period, under the entry of services not elsewhere classified. The Authority has held that the recovery of an amount from an employee for breach in serving the stipulated notice period would qualify as “tolerating an act” on the part of the employer and would be liable to CGST. The Authority also held that the said transaction would not be covered under the exemption provided to employer-employee relationship under CGST Act.

HRPI View: Strongly recommend that India HR leaders reach out to their taxation teams to solicit their final decision on how to approach this subject.