Notice Period Payout Taxation

Your salary till the date of leaving your employment with the previous company should have been reflected in Form 16 issued by the employer, after deducting salary for the notice period. If it is not done so, you may, while filing your IT Return, offer only salary after deducting salary for the notice period.

In the case of new employer, whatever is paid will be salary including the reimbursement of your notice period pay.

Thus you will be paying taxes only on your actual salary earned and there is no extra tax to be paid by you.

Yes but need to check whether the company has considered the same or not as there cannot be double taxation.. It will be considered as part of salary and regular rate is applicable.

But this judgement can help you which came 10 days before. In a significant ruling, the Ahmedabad bench of Income Tax Appellate Tribunal or ITAT recently ruled that an amount deducted from an employee's salary for not serving out a notice period cannot be considered as taxable income. "...in our considered view, the actual salary received by the assessee is only taxable and therefore, we allow this ground of appeal of the assessee," the bench said earlier this month. In other words, this means that where an employee has not served the notice period as per terms of employment and deduction has been made from his or her salary in this regard, such deduction could not be treated as income of employee and subjected to income tax.

Dear Sir,

1. Yes, you need to pay income tax on reimbursement amount (joining bonus) as per your slab rate (I.e. 5% /20% or 30%)

2. No, unfortunately you cant claim any loss or something.

Please feel free to call/revert in case of any doubts

Thanks and Regards

Abhishek Dugar

CA CS B.Com

Hi,

There is no provision in the Income-Tax Act to treat such sum as not taxable though you may term it as a mere reimbursement of a sum incurred by you to get relieved from one employer and to take up employment with another.

it will be taxable in your hands.

But recently ITAT (Ahmedabad bench) in its order dated April 18, said only salary received would be taxable, and not portions which were deducted by a company for not serving out a notice period.

so ,you are not required to pay tax on the salary which you forgo due to short notice period.

Hello Saurabh,

The reimbursement provided by your new employer will obviously be chargeable to tax as that is a part of your pay.

For the amount that you will be paying back/ returning to your old company, you may ask them to adjust in their form 16 and charge you tax only for the residual.

So if in case you worked for 9 months and you have returned a salary for 1 month then the Form 16 will show only the net salary.

Trust this clarifies your query.

Feel free to call / get back in case of further clarifications.

Thanking You.

Regards,

Rohit R Sharma

BCOM, ACA, LLB-GEN, CERT. FAFP

Hi,

The notice period pay will not have any impact on taxation. The amount you paid to old employer will be allowed as deduction from Salary and the amount reimbursed by new employer will be added to your Salary.

You will have to calculate taxes on your entire year's salary (From both employers) and if there is any difference in the Tax liability and the TDS, then you will have to pay the same or claim Refund, as the case may be