Sunday, December 13, 2015

Employers likely to pay service-tax on forfeiture of retention bonus or deposits of employees

Employers shell out various rewards besides regular salary to retain talented employees. Usually they offers retention bonus to talented employees. In some cases, employers collect security deposits from employees which could be forfeited if employee is unable to serve the specified period.
Recently a directive has been issued to alert field officials on an all-India basis to keep check on amount received or forfeited by employers from their employees. Now the service-tax department wants to tax amounts received by the employer from employee treating the same as consideration received in lieu of providing service by letting employees to leave ahead of time. Therefore, employers could become liable to pay service tax on retention bonuses or money taken back from the employees.
According to section 66E of the Finance Act, 1994, agreeing to the "obligation to refrain from an act, or to tolerate an act or a situation, or to do an act" constitutes a service. This covers the return or forfeiture of money ahead of the stipulated notice or bond period and thus service tax could be levied.

Compiled By:
CA Narinder Gupta
47- Near New Judicial Court Complex,
Opposite Judge’s Residence Gate
Rajpura – 140401

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