The Haryana Authority for Advance Ruling (AAR), ruled that the Amount of Surety Bond forfeited/encashed from outgoing contractual employee attracts nil GST.
The applicant, Rites Limited, is a multi-disciplinary consultancy organization in the fields of transport, infrastructure and related technologies. It provides a comprehensive array of services under a single roof and believes in transfer of technology to client organizations.
In addition to the recovery of the Notice Pay, the Applicant, in contractual agreements, offers job to the candidates with a pre-condition that the employee has to serve a minimum period, known as, bond period. Also, in case of contractual employment, a surety bond of a fixed sum, say Rs. 1,00,000/- is executed by the Applicant company from such employee at the time of joining itself.
Now, if such employee decides to leave/resigns from the organization before the completion of such bond period, the surety bond furnished by such employee is being forfeited by the company as a compensation for the loss caused to it due to non-completion of bond period by the contractual employee. For example, an employee has a bond period of I year and executed surety bond of Rs. 1,00,000/-at the time of joining.
Now this employee decides to leave the Applicant company after working for 2 months i.e. before completing remaining period of 10 months as per his employment contract, then his bond amount of Rs. 1,00,000/- will be encashed/forfeited by the Applicant company.
The applicant has sought advance ruling on whether the amount of Surety Bond forfeited/encashed by the Applicant company from the outgoing contractual employee would be taxable under GST law and if yes, rate of GST thereupon?
The Bench comprising Sunder Lal, CGST and Kumud Singh, SGST observed that “GST is not applicable to Amount of Surety Bond forfeited/encashed from outgoing contractual employee.”
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