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I switched jobs in December last year. My old company has deducted ₹1 lakhas notice pay recovery since I did not serve the entire three months’ notice. Can I claim this payment as tax deductible from my income while filing my Income Tax returns?
Shashwat
In case of an employment agreement, there could be a clause to serve notice-period, failing which the salary for the unserved notice period could be recovered from the employee.
As per section 15 of the Income-tax Act,1961 (‘the Act’), salary is taxable if it is ‘due’ or ‘paid’, whichever is earlier. We assume the former employer would be withholding taxes under section 192 of the Act on the gross salary due to the individual. Further, there is no specific deduction available to an employee under the Act for recovery of such notice-pay.
We understand that in the current case, there is a notice period of three months applicable to employee as per employment agreement. The notice-pay and subsequent recovery for non-serving/partial serving of specified notice period is a breach of the terms of employment agreement entered by employer and employee. Therefore, any amount determined as recovery for unserved notice period should not be adjusted against the salary payable (for the period served). As there is no specific deduction under Indian tax laws, it is prudent to say that the recovery of notice-pay should ideally not be adjustable against any salary due to be paid to an employee.
I had invested in the National Savings Scheme 1987. What is the tax liability if I want to close the account and withdraw the entire deposit?
N.R. Krishnaswami
We assume that on closure of the investment under the National Savings Scheme, 1987, the maturity proceeds received by the individual will be inclusive of the principal amount invested over the life of the investment and the interest accrued thereon.
We assume that the individual has not offered any amount to tax so far, which is in line with the provisions of the Income-tax Act, 1960 (‘the Act’). As per section 80CCA(2) of the Act, an amount equal to the full corpus, i.e. principal and interest accrued, would be taxable in the year of withdrawal.
Thus, the individual will be liable for payment of tax on the entire proceeds received on closure of the account and withdrawal of the entire corpus fund.
The writer is a Partner with BDO India LLP
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