Employee recoveries are a common source of GST disputes because payroll, HR and finance often use different labels. The control question is whether the recovery is linked to employment, a taxable supply, or a penalty/compensation scenario clarified by CBIC.
Schedule III states that services by an employee to the employer in the course of or in relation to employment are neither supply of goods nor supply of services. This protects the core employer-employee relationship, but every recovery line should still be reviewed on its facts.
CBIC Circular 178/10/2022-GST clarifies that forfeiture of salary or recovery of bond amount for leaving employment before a minimum agreed period is not consideration for tolerating an act. The circular explains such recoveries as penalties/deterrents, not payment for a taxable tolerance service.
| Recovery type | GST control question | Evidence |
|---|---|---|
| Notice pay / shortfall recovery | Covered by employment contract and Circular 178 logic? | Appointment letter, resignation terms, full-and-final settlement. |
| Training bond recovery | Is it deterrent/penalty for early exit? | Bond agreement, HR calculation, settlement sheet. |
| Laptop/damage recovery | Is it compensation for loss/damage or supply of asset? | Asset policy, damage report, recovery working. |
| Canteen/transport recovery | Separate supply/vendor arrangement to be examined separately. | Vendor bills, HR policy, recovery basis. |
This draft uses official GST law, rules, GST Council, CBIC/GST portal and government-source material only. Before publishing, re-check whether any notification, circular, rule text or portal workflow has changed after the draft date.