GST on Notice pay recovery

Recovery of notice pay has always been a tricky area. Different companies follow different procedures. As per a recent report of PwC, notice pay recovery is an issue under current Service tax regime and may continue to remain an issue under GST regime. However, considering that the same appears from a contractual obligation, a position may be taken that no GST should be charged on the same. The company needs to appropriately word the same in their employment manual.

Notice pay recovery is a consideration paid by employee to employer for non-performance of a contract of employment.

This is a taxable service covered under head “Agreeing to tolerate an act” SAC Code 999794- GST 18%.

If in the appointment letter, it is specifically mention that Notice pay shall be recovered with GST, then it will be recovered from employee, otherwise it will be deemed that, GST is inclusive as per Rule 35 of CGST Rules, 2017 and the employer shall bear the GST component.

For conceptual clarity on GST refer following link.

https://www.amazon.in/dp/194832105X  

https://www.amazon.in/dp/164249030X

What will be the position in case notice pay recovery is done by the educational institution? Still will it be chargeable to GST?