Service Agreement - Tax Exemption

Hi Pankaj,

I worked for an organization for 18 months and while leaving, i had to pay an amount of Rs.60,000.00 (approx) towards breach of service agreement i had with that employer. The same was deducted from my Full and Final Settlement amount and was clearly shown as deduction in the FnF statement. Can i show this amount as deduction from my Gross salary while calculating the tax liability? Should the employer show this amount in the Form-16 issue by him?

Thanks, Mahesh

asked Jun 29 '11 at 18:38 by MaheshChaganti 1111


Notice period deduction amount won't be shown in Form-16. Its an expense and deduction is not available for it. Its a penalty imposed by the employer for not serving notice period. In Income tax no exemption or deduction is allowed for penalty.

answered Jun 29 '11 at 22:00 by Pankaj Batra 5.2k320

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Hi Pankaj, thanks for you reply. I would like to inform you that, the amount deducted is not towards shortfall in the notice period. I have served the entire notice period. This deduction is towards, breach of service agreement, i signed before travelling abroad for Knowledge Transfer, promising that i will stick on to the organization for 2 year post completion of the training / returning. Can you please clarify on this please. thanks, Mahesh
(Jul 06 '11 at 18:48) MaheshChaganti
In this case too, same rule will apply as its an expense/penalty.
(Jul 07 '11 at 13:16) Pankaj Batra

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Asked: Jun 29 '11 at 18:38

Seen: 1,730 times

Last updated: Jul 07 '11 at 13:16