What you are owed when you leave a job in India

The short answer. Leaving a job in India, you are owed salary for the part month, unused earned leave, gratuity after five years of service (about ₹2.88 lakh on a ₹50,000 basic after ten years) and any bonus due, minus recovery for notice not served. Settlement comes 30 to 45 days after the last day; the provident fund is separate.

The short version

A full and final settlement adds your unpaid salary for the part month, your unused earned leave, gratuity if you have completed five years, and any reimbursements or bonus your policy owes. It then subtracts recovery for notice you did not serve, any advance or loan, and the cost of anything not returned. Most employers settle within 30 to 45 days of the last working day.

Step one: fix the last working day, in writing

Everything else hangs off this date, and it is the one most often disputed. Notice runs in calendar days, not working days, so weekends and public holidays are inside it. Three months from 5 January ends on 4 April; the Notice Period Calculator gives the date from the day you resign, and what leaving sooner costs.

The genuine ambiguity is whether the day you resigned counts as day one. Your appointment letter usually does not say, your HR system has an opinion, and the two readings are a day apart. Agree it by email before you plan anything around it, because a one-day disagreement at this stage becomes a one-day recovery at the settlement stage.

Step two: the five-year question, before you set a date

Gratuity becomes payable after five years of continuous service with the same employer, and it is worth fifteen days of pay for every year served. On a last basic of ₹50,000 a month, ten years of service is about ₹2.88 lakh on the Gratuity Calculator. At four years and eleven months it is, in most companies' reading, nothing at all.

That makes the gap between four years ten months and five years the most expensive two months in a career. If you are anywhere near the line, work out the date before you send the resignation, not after. The other side of the same arithmetic: a part year of more than six months counts as a whole one, so leaving at seven years and seven months is paid as eight years.

There is case law treating four years and 240 days as five in establishments working five days a week, and some employers apply it. Many do not. Ask before you rely on it.

Step three: leave, and the trade-off nobody points out

Unused earned leave is paid out at basic plus dearness allowance, usually divided by 30, so a 60-day balance on ₹60,000 a month is about ₹1.2 lakh. Some employers divide by 26 instead, which pays more; your payslip decides, not a formula, and the Leave Encashment Calculator takes either and shows the tax-free part.

Here is the part that costs people money. If you are leaving before your notice period ends, most employers will let you either encash the leave balance or set it against the notice shortfall, not both. Which is better is arithmetic you can do in two minutes:

Offsetting saves you the recovery, which is charged at monthly pay divided by 30 — and the monthly pay named in your contract may be gross or even full CTC, not basic (the Salary Calculator shows how far the three sit apart).
Encashing pays you at basic plus DA divided by 30, which is a smaller daily rate.

Where the recovery is charged on gross and the encashment is paid on basic, offsetting is worth substantially more per day. Where both use the same base, it makes no difference. Read which figure your appointment letter names for recovery; that single word decides it.

Tax treatment differs too: leave encashed while you are still employed is fully taxable for everyone, while leave paid on leaving a private job is exempt up to a lifetime limit, and a government employee's is exempt in full on retirement.

Step four: the provident fund, which is not part of the settlement

Your EPF balance is not paid with your full and final settlement and does not come from your employer; the EPF Calculator shows what it grows to if it is left alone. It sits with EPFO, and you have two choices.

Transfer it to your new employer against the same UAN. Your service is then continuous for provident fund purposes, which matters, because the tax rule depends on it.

Withdraw it and, if your total continuous service is under five years, the withdrawal is taxable — the employer's contributions and the interest as income, and any 80C deduction you took on your own contributions reversed. Tax is deducted at source once the amount crosses ₹50,000, at a higher rate if your PAN is not on the account.

Withdrawing between two jobs to cover a gap is the single most common and most expensive mistake in this whole sequence. It is taxed, it resets the five-year clock, and it removes the one balance that compounds untouched for decades.

If your continuous service is	Withdrawing now	Transferring
Under 5 years	Taxable, TDS above ₹50,000	Keeps the clock running, nothing taxable
5 years or more	Tax-free	Still usually better; it keeps compounding

Note that "continuous" counts service across employers only if the balance was transferred each time, not withdrawn.

Step five: the tax year you are leaving in

Two things go wrong here, both in the same year.

If you join a new employer part way through the financial year, they will deduct tax as though your new salary is all you earned. It is not, so you finish the year under-deducted and settle the difference when you file. Give the new employer your previous employer's income details so they deduct against the real total; ask for Form 12B, which is exactly what it is for.

Second, the settlement itself is income of the year you receive it. Gratuity up to the lifetime tax-free limit is exempt for a non-government employee and the excess is taxable; leave encashment has its own exemption; notice pay recovered from you is generally not allowed as a deduction against your salary, which surprises people who assume it nets off.

Run your full year — old salary, new salary, settlement — through the Income Tax Calculator once in February. Finding out you owe a lakh in July is worse than knowing in February.

Step six: what to ask for, and when

The settlement statement, itemised. Not a figure, the lines that produced it.
The relieving letter and experience letter, which your next employer's background check will want.
Form 16 for the part year, which arrives after the year ends.
Gratuity, which under the Payment of Gratuity Act is payable within 30 days of becoming payable, with interest if it is late.
PF transfer or claim raised on the EPFO portal once your exit date has been marked by the employer. Check that it has been marked; an unmarked exit date is the most common reason a claim sits.

The order to do the arithmetic in

Last working day, from the resignation date.
Gratuity, from completed years, and whether waiting changes it.
Leave: encash or offset, using your contract's recovery base.
The settlement: earnings minus recoveries.
The PF decision: transfer, almost always.
The tax year as a whole, with both employers in it.

Each step has a page on this site that shows its working, and none of them sends anything you type to a server: dates, salaries and balances are your own business and stay on your device.

Estimates for planning only, not legal or tax advice. Your appointment letter, your employer's policy and a qualified professional are the authority on your own settlement.

Questions people ask

What is included in a full and final settlement?

Unpaid salary to the last working day, unused earned leave, gratuity if five years are complete, and any bonus, incentive or reimbursement the policy owes, less recovery for notice not served, any advance or loan, and the cost of anything not returned. The provident fund is not in it; that stays with EPFO.

How long does a full and final settlement take?

Most employers pay 30 to 45 days after the last working day, with an itemised statement. Gratuity has its own clock under the Payment of Gratuity Act: it is payable within 30 days of becoming due, with interest after that. Form 16 for the part year arrives only after the financial year ends.

Is gratuity paid before five years of service?

In most companies' reading, no: it needs five years of continuous service with the same employer, so four years and eleven months pays nothing. Some employers apply case law that treats four years and 240 days as five in a five-day-week establishment. Ask before you choose a resignation date near the line.

Should I withdraw or transfer my PF when changing jobs?

Transfer it against the same UAN. A withdrawal under five years of continuous service is taxable, with TDS once it crosses ₹50,000, and it resets the five-year clock; a transfer keeps the service continuous and the balance compounding. Withdraw only when there is no other money to bridge the gap.

Sources

Checked 22 Oct 2026:

The Payment of Gratuity Act, 1972, under Acts and Rules at the Ministry of Labour and Employment, labour.gov.in (five years of continuous service, fifteen days' wages for each year, payment within 30 days)
Employees' Provident Fund Organisation, epfindia.gov.in (transfer against the UAN; tax deducted on a withdrawal before five years of service)
Income-tax Act, 2025 (the exemptions for gratuity and for leave encashment on leaving) and the Income-tax Rules, 2026 (Form 12B, the previous employer's income given to the new one)
The amounts on this page are this guide's own arithmetic on the figures named beside them, rounded to the rupee