Which calculator do I need?
- Notice period calculator: you have resigned (or are about to) and want your last working day.
- Notice period buyout calculator: you want to leave early and need the amount to pay or recover for unserved notice days.
- Full and final settlement calculator: you know your last day and want the net amount of your final dues (salary, leave, gratuity, bonus, minus recoveries).
How a notice period buyout works
Your appointment letter sets a notice period, commonly 30, 60 or 90 days for private sector roles. If you want to leave sooner, most employers let you pay salary in lieu of the days you skip. That payment is the buyout. The employer can also choose to waive part of the notice, in which case nothing is owed for the waived days.
No central law fixes the buyout formula for salaried staff. The rate comes from your contract or HR policy. Three details change the number:
- Salary base. Basic + DA gives a smaller buyout than gross pay. Read the exact words of the clause.
- Divisor. Most payrolls use a 30-day month. Some use 26 working days, which raises the daily rate by about 15 percent.
- Leave adjustment. Some policies let you set unused earned leave against unserved notice. Others pay leave encashment separately and still recover the full buyout.
For workers covered by the Industrial Relations Code, 2020 (in force since 21 November 2025), notice rules for retrenchment are statutory: one month's notice or wages in lieu. That is a different situation from an employee resigning; see the retrenchment compensation calculator for it.
Worked example
Neha earns ₹60,000 a month. Her contract has a 90-day notice period and uses gross salary on a 30-day basis. Her new employer wants her in 30 days.
| Step | Working | Result |
|---|---|---|
| 1. Daily rate | ₹60,000 ÷ 30 | ₹2,000 |
| 2. Unserved days | 90 − 30 served | 60 days |
| 3. Buyout | ₹2,000 × 60 | ₹1,20,000 |
| 4. With 10 days of leave adjusted | ₹2,000 × 50 | ₹1,00,000 |
| 5. On a ÷26 basis instead | ₹60,000 ÷ 26 × 60 | ₹1,38,462 |
The old employer usually recovers this from Neha's final salary, leave encashment and other dues. If her dues are smaller than the buyout, she pays the gap. Run her exit through the full and final settlement calculator to see the net figure.
Who pays: you or the new employer?
There are two common routes:
- You pay. HR deducts the buyout from your full and final settlement. Ask for the calculation in writing, including the salary base and divisor.
- The new employer pays. The new company reimburses your buyout, often as a joining bonus. This is common for senior and hard-to-fill roles. Make sure the offer letter states the amount, when it is paid and any clawback if you leave within a year.
Hiring managers: buyouts are a real cost of hiring quickly. Track them alongside agency fees and job-board spend with the cost per hire calculator. If long notice periods keep slowing your pipeline, faster screening helps you start the clock earlier; see how AI resume screening shortens the time to an offer.
Is notice period buyout taxable?
Reimbursed by the new employer: the amount is part of your salary from the new employer. It is taxed at your slab rate under the Income-tax Act, 2025 (in force from 1 April 2026), and the employer deducts TDS on it.
Deducted by the old employer: the Act has no specific deduction for notice pay you give up. In Nandinho Rebello v. DCIT (2017), the Income Tax Appellate Tribunal, Ahmedabad, held that only the salary the employee actually received is taxable, so the recovered notice pay was excluded. That is a tribunal ruling decided under the 1961 Act, not a rule in the statute, so your Form 16 may still show gross salary. Speak to a tax adviser before you claim it.
Does GST apply to notice pay recovery?
No. CBIC Circular No. 178/10/2022-GST dated 3 August 2022 dealt with this directly. It said amounts an employer recovers when an employee leaves before the agreed period (notice pay, forfeited salary, bond money) are not consideration for tolerating an act. The employee gets nothing in return, so there is no supply and no GST. Before the circular, a few authorities for advance ruling had held notice pay taxable, which is why older articles say otherwise.
Frequently asked questions
How is notice period buyout calculated in India?
Buyout = monthly salary ÷ 30 × unserved notice days. The salary base and the divisor come from your appointment letter or HR policy, not from a statute. Some employers use basic + DA and others gross pay; some divide by 26 working days instead of 30.
Is notice period buyout calculated on gross or basic salary?
It depends on the wording of your contract or HR policy. Many employers use basic + DA, others use gross monthly salary. If the clause only says salary or wages and is unclear, ask HR in writing which base they will apply before you agree a last day.
Is notice period buyout taxable?
If your new employer reimburses the buyout, the amount is part of your salary from that employer and is taxed with TDS. If your old employer deducts notice pay from your dues, the ITAT Ahmedabad (Nandinho Rebello, 2017) held only the salary actually received is taxable, but this is a tribunal view, not a statutory deduction.
Does GST apply to notice pay recovery?
No, according to CBIC Circular 178/10/2022-GST dated 3 August 2022. It clarified that notice pay or bond amounts recovered from an employee who leaves early are not consideration for tolerating an act, so no GST is payable. Some earlier advance rulings had taken the opposite view.
Who pays the notice period buyout?
Either you pay it, usually through a deduction from your full and final settlement, or your new employer pays or reimburses it as a joining benefit. Senior hires often negotiate the second option. Get any reimbursement promise written into the offer letter.
Can I adjust earned leave against my notice period?
Only if your employer's policy allows it. Some companies let you offset unused earned leave against unserved notice days, which reduces the buyout. Others refuse adjustment and pay leave encashment separately. Check the leave and exit policy, and get HR's approval in writing.
Can my employer refuse a notice period buyout?
Yes. Buyout is usually at the employer's discretion unless your contract gives you the right to pay in lieu of notice. If the employer insists that you serve the full notice, leaving early can lead to a delayed relieving letter or a recovery claim.
Sources
- CBIC Circular No. 178/10/2022-GST (3 August 2022): GST on liquidated damages, notice pay and bond recovery
- Income-tax Act, 2025 as amended by Finance Act, 2026 (Income Tax Department)
- Industrial Relations Code, 2020 (full text, Ministry of Labour and Employment)
- PIB: Government makes the four Labour Codes effective (21 November 2025)
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Disclaimer: This calculator gives an estimate for general guidance only and is not legal, tax, or financial advice. Your actual buyout depends on your employment contract and company policy.