GST on notice pay, group insurance, phone bill: AAR

War for talent in India is intensifying in several sunrise industries. And so are the problems with something much more mundane – the tax treatment on money paid in lieu of serving the customary notice period.

GST will be applicable on employee recoveries such as notice pay, group insurance and telephone bill, an Advance Authority of Advance Ruling (AAR) has said.

The ruling said that as in the case of notice pay, the company is actually “providing a service” to an employee and hence GST should be applied on that. Under the GST framework, tax is levied on any activity that is viewed as supply of service-whether directly or deemed supply.

This tax complication comes at a time when top companies are complaining of high attrition. The ruling in the case of Bharat Oman Refineries is set to result in scrutiny by the tax department in the coming months as there’s already confusion over the issue.

(The one-stop destination for MSME, ET RISE provides news, views and analysis around GST, Exports, Funding, Policy and small business management.)

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