Tax exemption on notice pay

No this amount cannot be claimed as a exemption this is not a allowable expense under IT Act. The new company would be paying the same as a notice period buyback amount and it would include the same in your compensation for the year so that would be taxable.

Hello Sanjeev,

Thanks for your answer,

I agree for deducting tax from my current employer but then since i am paying it back to previous employer.

Hence i should have something in hand to ask for return from IT department while submitting my returns.

Since this amount in real is not income for me.

You have posted that " But my previous organization is not going to show this amount anywhere in my form 16 as recovery from employee or something else."

This stand of the company is absolutely unfair, unprofessional, and illegal, and your concurrence to this stand of the company is also absolutely wrong. You should not budge an inch if the company does not show this amount in FNF statement. You should rather submit a written representation tot he good offices of HR head, MD, appointing authority, Company Secretary demanding reply in writing only and by redg/speed post only, and lodge your objections and let them post a reply to you whatever they want. Company has to reduce your salary income by notice pay. If the good offices do not agree let them state so in writing only and you may not pay till they submit their contentions in writing.

If the company does not want to raise a demand of notice pay from you and does not want to show in your FNF statement and in form 16, then they are compounding their problems rather and a simple complaint from your end shall cause them need to submit explanation to CIT-TDS, etc.

You can also lodge a complaint with wages inspector.

Hello Kumar,

Many thanks for your revert. I agree on steps as you mentioned in your revert, but would like to send one polite mail before taking such strong action.

could you pls provide reference of some Law/Section, under which it is mentioned that such payments being paid to employer can be shown in form 16 and further can decrease my income from employer.

Thanks once again.

It is as simple as that the recovery of notice pay should be mentioned in your FNF statement, and thus your income from company shall get reduced by this amount. Company shall issue you form 16 acordingly for the  net amount paid to you and TDS.

If company decides to waive off notice pay recovery, it shall not deduct the same in FNF statement.

If company decides to not to waive off notice pay recovery, it shall  deduct the same in FNF statement.

What precisely has happenned in your case?

To your polite representations what is the reply of the comapny?

Hello Kumar,

Thanks for your reply and concerns!!

Pls find below details of revert received from my company on asking confirmation that Notice pay reimbursment amount willl reflect in my Form-16.

Revert from company as follows:

"We would like to inform you that the notice period compensation cannot be adjusted against the salary drawn by you during this financial year. Hence the same will not be reflected in your Form 16 which will be generated during  May 2012."

When notice pay salary is paid by the company then it can not be said that the same is penalty upon the company. Same is the case when it paid by the employee to the company.

Your lawyer or your CA would clarify the same to you in your favor and shall attach relevant citations/laws if required by the company.

May be that some of the personnel of the company who is either adamant or not properly informed or smarted than you is coercing and forcing you to do everything and even if this is unlawful and you have to suffer dilemma and loss. The purpose seems to be to keep you confused.

Valuable advice of learned experts/members is sought.

This financial year is not yet over.

Kindly look into the attachment. You may find it useful and you be able to put sense and convince your past employer. if required you may avail help from your lawyer and CA.

Many thanks Kumar,

God bless you!!!

Kindly make as many citizens as you can, aware and help them rise to defend themselves.

Today you faced one issue tomorrow you may face another.There are many other fellow citizens who might be facing many such or even worse issues.

Let us from a community and support each other.

Very well said Kumar, in todays time.. when corruption is on peak, you are providing defence to common people.

really your efforts are highly appriciated!!

I will do my best to share the info for sure!!

Hello Kumar,

Sorry to bother you again, but after providing all details to my company. i received below revert from them.

When notice pay salary is paid by the company then it can not be said that the same is penalty upon the company. Same is the case when it paid by the employee to the company.

Your company is not willing to revise FNF statement or form 16, and therefore tendering an interpretation as suitable to them.

It shall be appropriate to visit an income tax lawyer, CA, service lawyer. Either your counsel can legally update your income in your return or can correspond with your comapny to drill sense and help you get the requisite document.

If you wish to contact a LCI lawyer the related lawyer names and contact link is given below on the bottom of this page.

Mr Jain,

Your company is right while it states that notice pay recovery cannot be adjusted against your accrued salary as far as form 16 is concerned. The recovery is on account of contractual obligation and the same cannot be deducted agaisnt the salary you earned during the period of your employment with previous employer. Kindly appreciate that there are specific deductions allowable agaisnt each head of income under IT Act. When company pays an employee notice pay for early termination of employment, it claims such payment as business expenditure. However, the employee cannot claim deduction for notice pay as there is no such deduction permissible under Income from Salary.

Even the company has to show notice pay recovery as other income and cannot adjust it against salary expenditure.

There is net loss to the employee in such circumstance as he has to pay full notice pay to previous employer but receives only post tax compensation from new employer. But you know.....law is what it is...