SalaryDecode

Updated for FY 2026-27

Notice Period Buyout Calculator

Salary base your employer's clause uses

Companies differ: many recover on full monthly gross salary — check your appointment letter or exit policy for the exact wording.

Notice period in days as your contract states it (30, 60, or 90 are common), and the days between your resignation date and your actual last working day.

Estimated buyout amount

₹2,00,000

₹1,00,000 ÷ 30 per day × 60 unserved days (90 notice − 30 served)

This uses the common 30-day-month convention. Some employers divide by working days (~22) or the actual calendar month instead, and some add GST or recover on a different salary base — the exact clause in your appointment letter or HR policy decides.

Estimate only. Not tax or financial advice. Figures depend on your employer's exact structure — consult a CA for decisions. Updated for FY 2026-27.

How a notice-period buyout is calculated

When you resign, your contract obliges you to keep working for the notice period — typically 30, 60, or 90 days in Indian companies. A buyout (also called notice-pay recovery or salary in lieu of notice) is the contractual price of leaving earlier: for every notice day you do not serve, you pay the employer one day of salary, and the amount is usually deducted from your full-and-final settlement rather than paid separately. The arithmetic is simple:

Buyout = monthly salary base × unserved notice days ÷ 30

So a 90-day notice with 30 days served leaves 60 unserved days, and on a ₹1,00,000 monthly base that is ₹1,00,000 × 60 ÷ 30 = ₹2,00,000. The 30-day divisor is the common contractual convention for turning a monthly salary into a day rate; some policies use the actual calendar month or working days instead, which changes the per-day price without changing the structure of the formula.

Gross or basic? The base is a contract term, not a law

No statute prescribes how buyouts are computed — the Industrial Employment (Standing Orders) rules and shops-and-establishments Acts require notice or pay in lieu for certain categories, but the salary base comes from your appointment letter. In practice companies split roughly into two camps: recovery on full monthly gross, and recovery on basic pay (plus DA where it exists). The gap is not cosmetic. A ₹12 LPA structure with 40% basic pays ₹40,000/month basic against ₹1,00,000 gross, so the same 60-day shortfall costs ₹80,000 on one reading and ₹2,00,000 on the other. The calculator's toggle exists precisely because both clauses are common — the wording in your own appointment letter or exit policy decides which one applies to you.

Recovery and reimbursement are two different transactions

Two parties can end up paying for the same unserved notice, and the tax system treats them differently. A recovery is what your outgoing employer deducts from your final settlement (or invoices you for). A reimbursement is what a new employer pays to bring you on board faster — either transferred to you or settled directly with the old company, often labelled a buyout allowance or folded into a joining bonus. They feel like one transaction from your side, but on paper they are independent: one is money flowing out under your old contract, the other is money flowing in under your new one.

The tax picture, honestly

The reimbursement side is the settled half: an amount your new employer pays you to cover the buyout is a benefit from employment and is taxed as salary income in your hands, exactly like a joining bonus. A "100% buyout reimbursement" therefore lands net of TDS — on a ₹2,00,000 buyout at a 30% marginal rate, roughly ₹60,000 of the cost stays with you unless the new employer grosses the payment up.

The recovery side is murkier. Payroll practice is to tax the salary you earned in full and treat the recovered notice pay as a separate deduction — so Form 16 usually shows gross salary with no reduction for the recovery. The Ahmedabad ITAT in Nandinho Rebello v. DCIT (2017) disagreed, holding that only salary actually received after the notice-pay recovery was taxable for that assessee. But a tribunal decision binds nobody outside its case: there is no CBDT circular adopting it, employers have not changed their Form 16 practice, and a taxpayer claiming the net figure in their return is taking a litigation position. This page explains the divergence; it does not resolve it, and a decision on how to file belongs with a qualified tax professional.

The GST question — presented as the open question it is

Whether an employer must charge GST on notice-pay recovery spent years generating conflicting advance rulings. One line of AAR decisions (Gujarat's Amneal Pharmaceuticals ruling among them) held that the employer "tolerates the act" of early exit for consideration — a deemed service taxable at 18% — and many companies duly added GST to recovery invoices. Other rulings, and later appellate authorities, took the opposite view. CBIC Circular 178/10/2022-GST then clarified that amounts recovered under an employment contract for unserved notice are compensation for breach, not consideration for an independent supply, and post-circular rulings have largely followed it. Even so, some employers continue to charge GST out of caution, and past periods remain in dispute in places. If your settlement sheet shows an 18% line on the recovery, that is the history behind it — an educational summary, not a position on any individual case.

Like every tool on this site, this calculator runs entirely in your browser — your salary and notice details are never transmitted or stored anywhere. To see what the move itself is worth, run the old and new offers through the CTC offer comparison or the salary hike calculator, and check what leaving before the five-year mark costs in forfeited gratuity with the gratuity calculator.

Frequently asked questions

Is notice-period buyout calculated on gross salary or basic salary?
It depends entirely on your employment contract — there is no statute fixing the base. Many companies recover on full monthly gross (sometimes phrased as "salary in lieu of notice"), while others recover only on basic pay, or basic plus dearness allowance. The difference is large: on a ₹1,00,000 gross with 40% basic, a 60-day shortfall costs ₹2,00,000 on gross but ₹80,000 on basic. The appointment letter or HR exit policy is the only authority on which base applies; this calculator lets you compute either.
Does the notice pay my employer recovers reduce my taxable salary?
This is genuinely unsettled. Employers typically deduct the recovery from the final settlement but still report the full salary in Form 16, on the view that salary already accrued is taxable and the recovery is a separate contractual payment. The Ahmedabad ITAT in Nandinho Rebello v. DCIT (2017) took the opposite view for that taxpayer — only the salary actually received net of notice-pay recovery was taxable — but this is a tribunal decision, not a CBDT circular or Supreme Court ruling, and employers do not apply it in payroll. How a claim on this basis fares in an individual return is a question for a tax professional.
My new employer is reimbursing my buyout — is that taxable?
Yes, in the general case. Money the new employer pays you (or pays on your behalf) to cover a notice buyout is a benefit arising from employment, so it is taxed as salary income in your hands — the same way a joining bonus is. The recovery you paid the old employer and the reimbursement from the new one are separate transactions for tax purposes: paying one does not automatically offset the other, which is why a "fully reimbursed" buyout can still leave you with a real tax cost.
Why did my employer add 18% GST to the notice-pay recovery?
For several years, advance rulings conflicted on whether notice-pay recovery is a taxable "service" of tolerating an act — some AARs (including Gujarat in the Amneal Pharmaceuticals matter) said yes, and some employers charged 18% GST on recoveries to be safe. CBIC Circular 178/10/2022-GST then clarified that such recoveries are compensation flowing from the employment contract, not consideration for a separate supply, and several rulings after it have followed that view. Some employers still invoice GST out of caution or dated policy; the legal position remains something companies interpret differently, and this page describes the debate rather than resolving it.
Can my earned-leave balance be adjusted against the notice shortfall?
Often yes, but only if company policy allows it. Many exit policies let accumulated earned leave offset unserved notice days one-for-one, which shrinks the shortfall this calculator prices — 15 days of leave against a 30-day shortfall halves the buyout. Others pay out the leave in the final settlement but refuse to adjust it against notice. Both the adjustment and the leave-encashment tax treatment (§10(10AA) has its own exemption limits) follow from the specific policy, so the number of adjustable days is worth confirming with HR before resigning.
Is dividing the monthly salary by 30 the universal day-rate?
It is the most common convention, but not the only one. Some employers divide by the actual days in the calendar month (28–31), some by working days (around 22), and a working-day divisor makes each unserved day roughly 36% costlier than a ÷30 rate. This calculator uses the flat 30-day month because that is what most Indian buyout clauses specify; if your contract names a different divisor, the per-day rate scales accordingly.

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