Treatment of notice pay & joining bonus recovery in your income tax return

If an employee who has taken up a job under a bond or an agreement, leaves before the stipulated period; it may lead to recovery of notice pay from the employee or recovery of joining bonus. In a lot of cases, usually these amounts are reimbursed by the new employer. Let’s understand the tax implications of these transactions.

Notice Pay

Ruhaan was employed with Super Ltd and had to give a notice of 3 months before quitting his job. Ruhaan found a very exciting opportunity with Wonderful Ltd and decided to leave Super Ltd without sufficient notice. Super ltd made a recovery of notice pay from the full & final settlement. Ruhaan wants a TDS refund of the notice pay, since he did not receive this salary.

If super ltd adjusts the total salary paid by the notice pay received and does not include this amount in the Form 16 it issues to Ruhaan, he can take the TDS refund in his return. However, where the adjustment is not made by Super Ltd in the total salary, TDS deducted may be a loss for Ruhaan.

Joining Bonus

Aditya was working with AB ltd and had signed an agreement not to leave his job before the end of 6 months and he was paid Rs 50,000 joining bonus contingent on this. But Aditya quit AB ltd and joined XY ltd within 4 months. Aditya had to now pay back the joining bonus of Rs 50,000. Aditya asked his new employer XY ltd to reimburse him the joining bonus.

Aditya needs to carefully examine the Form 16 from both the employers, XY ltd will include joining bonus in its Form 16. However if AB ltd also includes the amount in the Form 16, Aditya may not be able to recover the tax deducted on joining bonus from the tax department. In such a case the TDS on joining bonus is a dead loss for Aditya which can neither be recovered nor be adjusted in his tax return.

 

You can read more about tax on salary here.

If you have any questions, do comment & ask us 🙂

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