Full and Final Settlement Calculator

What goes into Full and Final (F&F) settlement

When you resign or retire, your employer prepares a full and final (F&F) settlement — a lump-sum payment that combines all amounts owed to you minus all amounts you owe back. A typical F&F includes:

• Pending salary for days worked till last working day
• Leave encashment for unused PL/EL (taxed via Section 10(10AA))
• Gratuity if you completed 5+ years (Section 10(10), exempt up to ₹20L for non-govt)
• Pending performance bonus / variable pay earned but not paid
• Reimbursements pending (medical, LTA, phone — old regime only)
• Notice period recovery (deducted) if you didn't serve full notice
• PF and ESI are NOT in F&F — separate process via EPFO

Tax treatment of each F&F component

• Pending salary: Slab rate (regular salary tax).
• Leave encashment: Section 10(10AA) — exempt up to lower of 4 caps including ₹25L lifetime cap (raised in Budget 2023). Calc.
• Gratuity: Section 10(10) — exempt up to ₹20L lifetime for non-govt employees. Govt employees fully exempt.
• Bonus: Slab rate. Calc.
• Notice period recovery: Deducted from gross. Note that you may pay tax twice on the same money (employer recovers gross; new employer may reimburse and tax again). Plan with CA.

Worked example

Anita resigns from her job. Joining date: April 2018. Last working day: October 25, 2026. Last drawn monthly gross: ₹1.2 lakh. Basic for gratuity calculation: ₹50,000. Unused leave: 30 days. Pending bonus: ₹60,000. Notice shortfall: 15 days.

• Pending salary (25 days × ₹4K daily): ₹1,00,000
• Leave encashment (30 days × ₹50K/30): ₹50,000
• Gratuity (8 yrs × 15/26 × ₹50K): ₹2,30,769
• Pending bonus: ₹60,000
• Gross F&F: ₹4,40,769
• Notice recovery (15 days × ₹4K): ₹60,000 (deducted)
• Net F&F: ₹3,80,769

Common delays and how to handle them

• F&F takes longer than expected. Most companies pay F&F 30-45 days after last working day. Some delay 60-90 days.
• Form 16 reflects partial year. Your former employer issues Form 16 for the period you worked. The new employer issues a separate Form 16 for the rest of the FY. Combine both for ITR.
• Disputes: Send formal email to HR + payroll. Escalate to State Labour Commissioner if still pending after 3 months.
• PF transfer is separate. Use UAN portal to transfer to new employer; don't withdraw unless unemployed 60+ days.

Maximizing your F&F

• Time resignation strategically. Resigning right after a bonus credit beats resigning before — bonus is paid in F&F, but can be denied if conditions for vesting aren't met.
• Use unused leaves before notice begins. Encashment is taxable; using leaves means no tax loss.
• Negotiate notice period. A 90-day notice could be reduced to 60 if HR agrees, saving recovery cost.
• Don't spend F&F immediately. Park in liquid fund or short-term FD until your new income stabilizes.

Tax filing year of resignation

The year you resign is your most complex tax year. You'll have:

• Salary from old employer (with TDS)
• F&F lump sum (with TDS by old employer at slab)
• Salary from new employer (with TDS)
• Possibly notice period reimbursement from new employer (taxable)

Use ITR-2 (or ITR-3 if you also have business / professional income). Match all Form 16s (old + new employer) plus Form 26AS to ensure all TDS is accounted for.

Related

Leave Encashment · Gratuity · Notice Period Buyout · Bonus Tax · Income Tax · Which ITR Form