Understanding Notice Pay Tax Implications and Recovery Process: Form16 Reporting Guidelines

Hi,

If a company is giving notice pay to an employee, it is taxable. What if the company is recovering notice pay from an employee? If it is to be deducted from Gross Total Income, then how can it be shown in Form 16?

Thanks,
Nishanth

Dear friends,

The notice period is taxable as it's just like the normal salary that you earn month after month. Therefore, you tend to pay taxes; similarly, it is the same here as well. If we don't pay taxes, how can the government function? So, it is essential that at any given time, anybody who leaves the organization by giving the notice period must pay taxes.

Regards

Hi,

You didn't fully understand my query. I want to know what happens if a company deducts money from an employee as notice pay recovery. Will the employee benefit from this deduction, and if so, how should it be reflected in Form 16?

Nishanth

Notice pay amount, if paid by the employer, is always taxable in the hands of the employee, since it is the employee's obligation. Similarly, there is no tax on the notice pay recovery. The notice pay recovery amount has to be reduced from the taxable income of the employee at the time of the tax computation.

Regards,
Sushil

Dear Nishant,

I fully agree with Sushil. His is the correct interpretation. You can go ahead with it without any doubt.

KKT

Dear All,

We all know that the recovery/reimbursements of notice pay is taxable, but some employees want income tax guidelines on this. I have searched for the same but did not find any guidelines. If anybody has income tax rules on notice pay, please provide me.

Regards,
Jagdish Pathak