Tax on notice pay recovery

Hi Manish,

Hope you are doing well !!

Yes, you can deduct the amount paid to ex employer.

Section 15 of the IT act deals with the asked scenario.

The notice pay deducted by the first company need not be shown as salary income earned from the first company. The notice pay received from the second company need be shown as salary income earned from the second company. Section 15 says the salary income is taxable on Receipt or Accrual basis whichever is earlier but the salary can be taxed only on one basis. Thus the salary earned in the second company can be offered on receipt basis and the deducted notice pay in the first company shall not be offered as salary on receipt basis. 

We may assist you in ITR filing.

Hi,

That's not an issue.

You can deduct the amount while filing the return. 

Thank you

Salary is taxable on receipt basis and also TDS is deducted on payment basis. Yes, you can deduct the 2 months notice pay to the first employer from the gross salary.

Hello,

1. You are not required to pay tax on this amount of notice period deduction.

2. You can reduce it from your gross salary in your return. There might be a need for clarification due to a mismatch between Form 26AS and ITR, but it can be explained.

I hope this answer satisfies your requirement.

Regards,

CA Hunny Badlani

Yes if you have proper proof of same then you can surely deduct the amount and not pay any tax on same as there are various judgements where if you have paid any amount of notice pay you can claim it as deduction and not pay tax on same. Form 16 is not full and final evidence if you differ from same you can change it while filing your return of income.

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Thank you.

Hi

The treatment in this case would have different opinions.

This has been supported by many case laws that actual salary shall be made taxable and not the salary including notice pay recovery.

The only problem that would arise is that you would get an intimation of mismatch of income as per ITR and Form 16 if such salary as shown in form 16 is not taxed. 

Thus, it is advisable to pay off the taxes to avoid litigation.

Understanding of Facts is very important in your case.  I understand that usually notice pay is deducted form the full and final settlement.  Your salary is automatically adjusted by notice pay and form 16 is issued only for the actual salary paid to you after deducting notice pay.  It is incorrect for the employer to show salary and no tax deducted.  You should write to employer for issuing correct form after netting notice pay.  Where they fail to correct, you can report only net amount in tax filing.  Is questioned, you can show the emails and clarification and discussion with the ex-employer.