No GST tax to be paid on notice period pay, group insurance premium and mobile bill: AAAR

No GST tax to be paid: An Appellate Authority for Advance Ruling (AAR) has reversed an earlier decision of the AAR which held that Goods and Services Tax (GST) should be applicable on payments made instead of the employee notice period. The Advance Authority of Advance Ruling (AAR) had earlier said that GST would be applicable on employee recoveries such as notice pay, group insurance, and telephone bills. The earlier judgment held that in case of notice payment, the company is actually “providing a service” to an employee and hence GST should be applied to him.

What does ‘recovery’ mean?

According to the report, the AAR decision had said that GST would apply to the individual recovery of employees. Here recovery can mean telephone bill paid by the company, group insurance money etc. The money paid by the company for the insurance of the employees and the salary is given in the notice period can also attract GST.

Treatment of GST on Employee Remuneration

Under the CGST Act, all supply of goods and services attracts GST. It applies to an amount made by a registered taxable person for consideration and in the course of furtherance of business. However, Schedule I of the CGST Act includes transactions treated as supplies even if it is made without consideration between related parties but are made in the course or furtherance of business. Also, Section 15 of the CGST Act states that the employer and employee are deemed to be related persons.

Thus, supply made by an employer to an employee is liable to GST even if it is made without consideration (except gifts up to Rs. 50,000). However, Schedule III of the CGST Act states that ‘services by an employee to the employer in the course of or concerning his employment are not considered as supply of goods or services. So, GST does not apply to employee remuneration.

Appeal to Appellate Authority for Advance Ruling under GST

Know when is GST applicable?

Under the GST framework, the government charges GST on every work or service in which it sees the matter of supply of services. Supply of services means providing service. GST will be levied on the work or service in which the service is being provided. This service can be both direct and indirect. This decision is in the case of India Oman Refineries. However, AAAR has now reversed this decision.

Let us inform that earlier there have been controversies regarding the GST rate on papad, lassi and samosas. The tax department has also clarified the GST rates on fresh vs dried fruits and nuts, coconut vs copra and flavored sweet betel nut and flavored and coated cardamom, other issues related to external batteries sold with UPS system/inverter.

No GST tax to be paid On Notice Period Pay

An Advance Authority of Advance Ruling (AAR) had earlier said GST would be applicable on employee recoveries such as notice pay, group insurance and telephone bill.

AAAR has now reversed the ruling. “Merely because the employer is being compensated does not mean any service has been provided to the employer or the employer has tolerated any act of the employee for the premature exit,”


AAAR ruled.

“The Appellate Authority has rightfully reversed the earlier decision, and has once again emphasised on the doctrine that ‘supply’ does not contemplate or encompass a unilateral act, i.e. there has to be a quid-pro-quo, for a transaction to qualify as supply,”


Harpreet Singh, Partner, Indirect taxes at KPMG in India.

No GST tax to be paid