Question
Is notice-pay recovery taxable when my employer deducts it?
Answer
Bottom line: The position is unsettled — the tax department taxes full salary, but several tribunals have allowed the recovered amount to be excluded.
1. Department's view
Salary is taxable as it falls due, and Section 16 does not list notice pay as a deduction.
2. Tribunal view
Some ITAT rulings have held that pay actually recovered and never received cannot be taxed as your salary.
3. Practical point
There is no final Supreme Court ruling, so treatment varies — take a considered position with your advisor.
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This answer is general information based on the law as it stood when written and is not professional advice on your specific situation. Verify the current position and consult a qualified professional before acting. See our disclaimer.