Taxability of Notice Pay

This query is : Resolved

Gagan Kumar Kharkwal (Querist)
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01 October 2007 Query 1

Employee working in a company leaves the Job from Company without giving the Notice.
So the Company deducts the Notice Payment at the the time of full & final Settlement of the employee.
Whether Employee would be able to take deduction of Notice payment from his Salary Income

Query 2

The Second Company Reimburses to the Employee the Notice Pay Paid by the employee to the previous company.

Whether the recovery of Notice Pay made my employee from the current Employer would be considered for taxation for computation of Income of Employee.

Kindly quote with relevant Text, judgement or Notification if available

S.RAVICHANDRAN

S.RAVICHANDRAN (Expert)
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05 October 2007 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 recieved 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.