Hello, I switched jobs in January & I did not serve the entire notice period but chose to exercise the buyout option, which my new employer reimbursed 2 months later.
However, on my form 16 from my previous employer, my gross salary is calculated, without any deductions for the notice period buyout amount that I paid back.
I was also taxed for this amount again, when my new employer reimbursed the amount.
I feel I am paying income tax(twice) on salary that was never realized. also, my gross income seems to be inflated by the notice period buyout amount(since it was never realized income). On some portals, I read that this amount can be deducted from my gross salary while filing IT returns. Is this the right way to handle it?
Hey @Shruthi ,
Income from Salary is taxable on a due basis i.e. it is taxable on accrual basis and not on receipt basis.
However, in case of notice period, when the employee doesn’t serve the notice period and choose to pay the buyout amount, the same is not calculated as a salary income because it was never recovered by the employee.
The same can be deducted while filing your IT Return.
For example, you switched your job in December 2020 end but still the salary for January 2021 to March 2021 is included in your tax return, the salary pertaining to January 2021 to March 2021 can be excluded while calculating your salary income as it was never accrued to you and hence you don’t need to pay tax on that portion. (Case law reference: ITAT, Ahmedabad Branch in Shri Nandinho Rebello Vs. DCIT, Circle-14, Ahmedabad )
Hope it helps!
Hi Saad_C,
I have a somewhat similar situation to ask for and would request your help.
I joined my job on Sep-21 with 3 months notice period. But had to switch at the end of Nov-21. I served 2 months notice period (Oct & Nov for which I did not receive any salary) and had to buy the rest 1 month by paying back the amount for 1 month to my previous employer.
In form-16, my previous employer shows salary paid for Sep, Oct & Nov, but in actuality, I have received salary only for 1 month, i.e. Sep-21. So as per your answer, I can deduct the salary for Oct & Nov-21 while filing returns.
But can I also deduct the 1 month amount that I had paid on my own in my annual salary declaration in the ITR filing?
Hello Team,
I joined my job on Sep-21 with 3 months notice period. But had to switch at the end of Nov-21. I served 2 months notice period (Oct & Nov for which I did not receive any salary) and had to buy the rest 1 month by paying back the amount for 1 month to my previous employer.
In form-16, my previous employer shows salary paid for Sep, Oct & Nov, but in actuality, I have received salary only for 1 month, i.e. Sep-21. So as per previous suggestions on this platform, I can deduct the salary for Oct & Nov-21 while filing returns.
But can I also deduct the 1 month amount that I had paid on my own in my annual salary declaration in the ITR filing?
Hello @ajit_morya,
No, you can not deduct the amount paid to your employer for not serving the notice period from your taxable salary.
Hope this helps!