Notice Period Buyout Calculator for 2026

The buyout amount is the per-day salary multiplied by the number of days you do not serve. The per-day salary is your monthly salary divided by either 30 calendar days or 26 working days, depending on what your appointment letter specifies. For example, a monthly basic salary of 60,000 divided by 30 gives a per-day rate of 2,000.

If you have 30 unserved notice days, the buyout is 60,000. This number goes into your full-and-final settlement as a recovery deduction against whatever dues the company owes you, such as pending salary, leave encashment, and any bonus. If your dues exceed the recovery, you receive the difference. If they fall short, you must pay the balance separately in cash or by bank transfer to the employer before the relieving letter is issued.

No, and this is one of the most widely misunderstood points about notice period exits. When you pay a buyout to your employer for shortening your notice, that payment is not deductible from your taxable income under any provision of the Income Tax Act.

The Income Tax Appellate Tribunal ruled clearly in Nandinho Rebello v DCIT (2017) and subsequent cases that the buyout is a payment made by the employee from personal funds, not a deduction permitted against salary income. This means you pay tax on the full month’s salary even if part of it is withheld and recovered by the employer. The tax pain is real: you are taxed on money that never reached your bank account.

PILON stands for Payment In Lieu Of Notice, a phrase borrowed from UK employment law that has become standard in Indian HR parlance. It is the mirror scenario of a buyout: instead of the employee paying to leave early, the employer pays the employee to stop working immediately. PILON typically happens when the employer initiates the separation, such as in a layoff, restructuring, or a situation where the employer does not want the employee on the floor during the notice period for confidentiality or competitive reasons.

PILON is fully taxable as salary income under Section 17(1) of the Income Tax Act, with no exemption. It is different from retrenchment compensation under Section 10(10B), which has partial exemptions linked to years of service. PILON has no such exemption, so the employer must deduct full TDS and the employee must declare it in their ITR.

Yes, and this surprises many employees. When your new employer reimburses the buyout as a joining bonus, a notice period allowance, or any other head, that amount is taxable in your hands as a perquisite under Section 17(2) of the Income Tax Act. The new employer must deduct TDS on it and report it in your Form 16.

If the new employer pays you, say, 1 lakh to cover your buyout and you are in the 30% slab, you net only about 70,000 after TDS, which leaves you short. The correct negotiation is to ask for a gross-up: the employer pays an amount higher than the buyout so that after TDS you receive the full buyout cost. This calculator computes the gross-up amount at your chosen slab rate, so you know exactly how much to ask for.

Often yes, but it requires explicit written approval from HR. Many companies allow employees to adjust their pending earned leave balance against the notice period, which shortens the number of unserved days and therefore reduces the buyout. The adjustment is not automatic; it depends on company policy. Some employers cap the adjustment at a fixed number of days.

Some allow only sick or casual leave adjustments and not earned leave. And some employers treat notice-period leave adjustment as a waiver of encashment, meaning those leaves are not separately encashed in the FnF. Always confirm in writing which leaves can be adjusted, how many, and whether they will also be encashed. Enter the approved number in the leave adjustment field in this calculator to see the impact on your buyout.

It depends entirely on what your appointment letter says in the separation or notice clause. There is no standard: different companies use different bases. Using basic salary is most common in Indian IT companies and is the most favourable to the employee, since basic is typically 40 to 50 percent of CTC.

Some companies specify gross or fixed pay, which includes basic plus HRA and other allowances. A few, particularly in certain sectors, specify full CTC, which includes employer contributions and sometimes variable pay, making it the most expensive for the employee. If your contract is ambiguous, the generally accepted position is that notice pay defaults to gross salary, but this can be disputed. Always read the clause carefully before accepting an offer, not when you are resigning.

If your full-and-final settlement dues (pending salary, leave encashment, bonus) are less than the notice period recovery, the difference becomes a debt you owe the employer. The employer can demand the balance before issuing your relieving letter and experience certificate.

In most cases, employees pay the shortfall separately to avoid delays in background verification at the new employer, since a missing or delayed relieving letter can push back the new joining date. Legally, the employer can also pursue recovery through civil remedies for breach of contract under the Indian Contract Act, though most exit disputes are settled through negotiation rather than litigation. The practical enforcement lever is the relieving letter, not a court order, which is why most employees pay whatever the FnF does not cover.

Not necessarily. Whether you can buy out the notice depends on your contract. If the separation clause says “the employee shall serve a notice period of 60 days and the company may, at its discretion, accept payment in lieu,” then the employer has the right to accept or refuse.

If the clause says “either party may terminate by paying salary in lieu,” then the employee has the contractual right to buy out. In practice, most employers accept buyouts in IT and professional services because the alternative of having a demotivated employee on the floor for two months is worse for productivity. But for roles with access to sensitive information, trade secrets, or client relationships, employers sometimes insist on the full notice period or place the employee on garden leave, paying them through the period but restricting access.

For the employee who pays the buyout, the tax impact is that the salary from which the buyout is recovered is still fully taxable. Your Form 16 from the old employer should reflect the salary earned up to your last working day, and the notice recovery is typically shown as a deduction in the FnF, not as a reduction in gross salary for TDS purposes.

This means your taxable salary is higher than the net amount you received in cash. When you join your new employer in the same financial year, submit Form 12B to declare the previous employer’s salary and TDS, so your new employer can correctly aggregate the full year’s income from both employers and deduct the right TDS going forward. Failing to do this often results in either under-deduction or a mismatch in your ITR when you file.

No. The Central Board of Indirect Taxes and Customs has clarified in its circulars that notice period recovery is not a supply of service and therefore does not attract GST.

The recovery is compensation for breach of contract, which is specifically excluded from the definition of a taxable supply under GST law. This is a frequently misunderstood point in payroll, particularly for employers, some of whom were incorrectly raising GST invoices on notice period recoveries before the CBIC circular clarified the position. The settled position is that notice pay recovery between an employer and employee is outside the scope of GST entirely, whether the amount flows from employee to employer or the other way under PILON.

Yes, in practice this is the most common consequence of an unpaid notice period buyout. The employer has no legal obligation to issue a relieving letter or experience certificate until all dues are settled, and most employers exercise this right.

A missing relieving letter is a significant problem in Indian employment because most companies conduct background verification (BGV) and require it as proof of a clean exit. An adverse BGV flag, or a gap caused by waiting for the letter, can delay or derail onboarding at the new employer. This is the practical reason why employees either serve the notice, negotiate an early release without payment, or pay the buyout, rather than simply leaving without completing the separation process.

Garden leave means the employer pays you your full salary for the notice period but asks you not to come to work, access systems, or contact clients. You are still an employee on the payroll during garden leave, drawing salary, so there is no buyout and no tax complexity from the recovery.

You simply cannot join a new employer until the garden leave ends. Garden leave is typically used for senior employees in financial services, consulting, or sales-intensive roles where the employer wants to prevent competitive harm or client poaching during the notice period. A buyout, by contrast, terminates the employment relationship immediately in exchange for payment, and you are free to join the new employer once it is settled and the relieving letter is issued.

The divisor determines your per-day rate: monthly salary divided by 30 gives a lower per-day rate than dividing by 26. The difference matters because a lower per-day rate means a lower buyout for the same number of unserved days. The correct divisor is whatever your appointment letter specifies in the separation clause.

Most employment contracts in India default to 30 calendar days for notice pay calculations, while payroll systems typically use 26 for monthly pay calculations. Some appointment letters explicitly say “the monthly basic divided by the number of days in the month,” which means 28, 29, 30, or 31 depending on the month. When the contract is silent, the prevailing practice in Indian tribunals has been to use the actual number of days in the month, but when in doubt, the 30-day divisor is standard and easier to negotiate around.

Gratuity eligibility is based on completing five years of continuous service and is generally not affected by how you exit, whether through served notice or a buyout. If you have completed five years, you are entitled to gratuity regardless of the exit mode.

On the PF side, when the employer pays PILON, that payment is treated as wages under the EPF Act on the Basic plus DA component, and PF contributions may apply subject to the statutory wage ceiling. When the employee pays the employer (buyout), PF is not triggered on the recovery amount since it is a deduction, not a fresh wage credit. After resignation, your PF account remains active and continues earning interest; you can transfer it to your new employer’s account using your UAN to avoid any break in the corpus.

Yes, and this is how most early exits are actually resolved in the Indian workplace. The employer and employee often agree on a reduced notice period or a partial buyout through negotiation, particularly when the employee is cooperative about handover, has a good relationship with the manager, or is being replaced quickly.

The contractual figure is the ceiling, not a fixed obligation. Many exits happen for less than the full buyout through mutual agreement, and once both parties sign a full-and-final settlement that shows the agreed recovery, it is a closed matter. The key is to get the agreement in writing before your last day, so the FnF statement reflects the negotiated amount and not the full contractual recovery.

Then you simply serve the notice and no buyout is needed. If the new employer’s joining date is flexible, this is usually the cleanest outcome because you avoid the financial and tax complications of a buyout.

Many candidates negotiate a later joining date to cover their notice period, especially when the new employer values the hire and is willing to wait. The notice period, while often seen as a burden, is also a good transition buffer: it gives you time to complete handover, collect your documents, and start the new role in a settled state rather than rushing between two employers. A buyout is the right tool when the new employer cannot wait and the old employer will not grant early release for free.