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Infosys ex-CFO's severance pay attracts service tax

This tax angle could become a source of concern as large severance payouts with accompanying non-compete clauses become common in India

Apr 05, 2018, 09.28 AM IST
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Agencies
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In 2015, when the Bansal severance pay agreement was signed, the service tax rate was 14.5%. TOI requested Bansal for a comment, but none had come at the time of going to print.
(This story originally appeared in on Apr 05, 2018)
BENGALURU: There could be a service tax implication for the severance pay received by former Infosys CFO Rajiv Bansal. A portion of the Rs 17-crore payout related to the non-compete clause may come under the service tax ambit, sources told TOI.

This tax angle could become a source of concern as large severance payouts with accompanying non-compete clauses become common in India. What part of the overall payout relates to the non-compete clause and would come under the tax on services is a complicated calculation and depends partly on the view taken by the tax authority, an I-T expert said.

Taxes on services are now part of GST. In 2015, when the Bansal severance pay agreement was signed, the service tax rate was 14.5%. TOI requested Bansal for a comment, but none had come at the time of going to print.

K R Girish, founder of tax advisory firm KR Girish & Associates, said non-compete clauses have long been a litigious issue from a tax perspective. "Non-compete clauses are usually structured to mean you cannot take any employment of similar nature for a considerable time, thereby reducing substantial revenue-earning potential. There may be no employer-employee relationship in this, but the taxman could argue it's still service being rendered in the past. If the individual is not paying service tax because he is not registered under it, the taxman can issue a notice to the company to discharge the service tax obligation," Girish said.

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