How skipping notice period can lead to a tax trap

Switching jobs often brings excitement a new role, better pay, etc. But it also comes with challenges. One of the trickiest is serving out the notice period.

- Aprajita Sharma

For many, the solution seems simple: allow the employer to deduct the penalty for skipping the notice, especially if the new company agrees to compensate.

Problem solved, right? Not quite.

This workaround can trigger an unexpected tax burden, leaving them paying taxes on income they never received.

Skipping a notice period doesn't just mean forfeiting salary-it can also lead to double taxation.

Employees are taxed both on the salary deducted by their previous employer and on the compensation paid by their new employer. It's a tax trap that catches many by surprise.

Take the example of Mr. A,who earns a monthly salary of 1 lakh. Upon resigning, he needs to serve a two-month notice period, but skips. So, his employer recovers 2 lakh, classifying it as notice period recovery. While Mr. A doesn't mind this deduction, as his new employer compensates him with 22 lakh for joining early, he is taken aback when he realizes he is taxed on his full 12-month salary by his previous employer.