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Deduction of notice period dues

Raj Thakkar (ARTICLE) (382 Points)

26 July 2023

If at the time of resignation, an assessee makes payment to employer towards notice period dues or refund of benefits received, then whether such payment is deductible from salary Income while filing return of income.?

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11 Replies

Nikita Agarwal (Semi Qualified CA) (3208 Points)
Replied 26 July 2023

These payments are typically not part of the taxable salary income as per the Income Tax Act, they may not be eligible for deductions while filing the return of income. Instead, such payments are treated as separate financial transactions between the employee and the employer, and their tax treatment is not covered under salary income. section 15 of the IT act does not have provisions for deductions related to payments made to the employer in cases of resignation.

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Madhavan R (88 Points)
Replied 27 July 2023

Though the notice pay out is not shown in form 16 it forms part of salary and deductible as others in the ITR filing
refer to ITAT Ahmedabad judgement on this one
I have made a filing based on actual salary received ( gross -notice pay amount) and filed a refund claim last year successfully

Raj Thakkar (ARTICLE) (382 Points)
Replied 27 July 2023

Respected Sir/Madam

Thank you very much for your reply. Please guide me where should I mention the figure of notice pay amount to get the deduction.
or
The net figure of salary after deducting the notice pay amount should be disclosed as salary income?

Regards.

Madhavan R (88 Points)
Replied 27 July 2023

Take the net figure after notice pay out and mention the same in deduction others column descripttion

You keep the pay out debit details bank stt or any other acknowledgement of the employer as a proof to submit upon querying

the judgement ITAT I shall attach later on

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Raj Thakkar (ARTICLE) (382 Points)
Replied 27 July 2023

Thank you sir for your response. Please help me to understand this:

So, I should mention net figure after deducting the amount of notice period dues in the field salary as per section 17(1).

But please tell me "deduction others" as mentioned by you is available under which section/schedule?

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Musrath Shaik (175 Points)
Replied 27 July 2023

The deductibility of payments made by an assessee (employee) to the employer for notice period dues or refund of benefits received upon resignation can vary depending on the tax laws of the specific country and its treatment of such payments. As my knowledge is based on information up to September 2021, I will provide a general answer, but it's essential to consult with a tax professional or refer to the latest tax laws in your country for the most accurate and up-to-date information.

In many countries, the deductibility of such payments from salary income may depend on the nature of the payment:

Notice Period Dues: If an employee resigns but is required to pay the employer for not serving the full notice period as per the terms of the employment contract, the payment made for notice period dues is generally not deductible from salary income. This is because it is considered a personal expense arising from the breach of the employment contract and not directly related to the employee's duties or responsibilities.

For further more detailed information on this topic visit: Flow of Notices under GST

To read more such trending content, visit Swipe Blogs.

Madhavan R (88 Points)
Replied 27 July 2023

https://www.taxcorner.co.in/2020/01/recovery-of-notice-pay-for-notice-period-is-deductible-and-not-taxable-itat.H

This judgement by the tribunal is standing for the benefit of doubt

I got refund with the above application

Raj Thakkar (ARTICLE) (382 Points)
Replied 27 July 2023

Thank you sir. Request you to please guide me about the disclosure of the same in ITR form?

Bhushan (Officer) (28 Points)
Replied 06 July 2024

Hello sir,

During the resignation instead of duducting from the salary, I paid for the notice period. Do I still apply for duduction for notice pay payout?

madhu babu (2 Points)
Replied 26 July 2024

Hi Madhavan,

I have paid amount of around 5 lakhs as Notice period recovery to my ex-employer. Is there a legally possible way to claim that amount as a deduction while filing ITR. If so how to show that amount as deduction while filing ITR ?

Your reply will be appreciated at this crucial times.

Thank you

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samarthpayroll (2 Points)
Replied 30 July 2024

Dear Sir,

We have process the FNF where we have shown salary say Rs. 15000/- and deduct the notice period amount Rs.10000/-. Net Rs. 5000/-. But in subsequent month we have decided to reimbursed the partial deducted notice period amount of Rs. 5000/- to him.

We have issue the form 16 where we have shown Rs 15000/- as gross salary. Now employee ask us to issue the form 16 of Rs 20000/- as he received Rs. 5000/- through legally.

Please guide us.