Notice Period Buyout Calculator
Notice Period Buyout Calculator
What it costs to leave before your notice period ends: the days short, the daily rate and the amount to pay or have recovered, on basic or gross salary as your contract says.
Notice buyout
A 90-day notice period, 30 days served, gross salary $60,000 a month, divided by 30
Notice buyout
- N
- the notice period in days
- S, L
- days you will serve, and leave days your employer lets you set off
- W
- the monthly salary the contract charges on — basic or gross
- D
- the days the month is divided by: 30, the month’s calendar days, or 26 for working days
Worked example
A 90-day notice period, 30 days served, gross salary $60,000 a month, divided by 30
Days short = 90 − 30 = 60
A day's salary = 60,000 ÷ 30 = $2,000
Buyout = 60 × 2,000 = $1,20,000, two months' gross salary
On basic salary of $30,000 it would be $60,000; on gross divided by 26, $1,38,462
What decides the amount, and the GST question
A notice-period buyout is the salary for the days you do not serve. Three things in your contract decide the figure: the notice period itself, whether the recovery is on basic or gross salary, and how a day’s salary is worked out. On the example the same 60 days cost $60,000 on basic salary and $1,20,000 on gross. If notice runs in calendar days, a day’s salary is the month’s salary ÷ 30 (or the days in that month); dividing by 26 is right only when the notice is counted in working days, and otherwise raises the bill — here to $1,38,462. Some employers let you set earned leave against the notice, or waive part of it; that is their choice, not a right, unless your contract says so.
How it is paid varies. The employer may recover it from your final settlement, or ask you to pay it; a new employer sometimes reimburses it, and that reimbursement is usually treated as part of your pay. Salary for the days you did serve, leave encashment, gratuity and any bonus are separate items in the full-and-final settlement.
Is GST charged on notice pay? It was disputed. Some advance rulings from 2020 treated notice pay recovered by an employer as a taxable supply, while the Madras High Court, in a case under the earlier service tax, held it was not a payment for any service. The Central Board of Indirect Taxes and Customs’ Circular 178/10/2022-GST of 3 August 2022 clarified that salary forfeited or paid under an employment bond for leaving early is a penalty for breaking the contract, not a payment for tolerating an act, and later advance rulings have applied the same reasoning to notice pay. The weight of current authority is that it is not taxable, but advance rulings bind only the company that asked, so how your employer treats it is for them and their adviser. The page adds no GST.
For what a new salary is worth use the salary hike calculator; for gratuity on leaving, the gratuity calculator; and to plan the gap between jobs, the emergency fund calculator. This is arithmetic on the figures you enter, not financial advice.
Frequently asked questions
How is notice period buyout calculated?
Days short × monthly salary ÷ the divisor. With 60 days short on $60,000 gross ÷ 30, it is $1,20,000.
Is notice pay on basic or gross salary?
Whichever your appointment letter or HR policy says. Many employers use gross salary; some use basic. The page shows both.
Should the divisor be 30 or 26?
30 (or the calendar days in the month) when notice is counted in calendar days, which is usual. 26 matches working days only.
Is GST payable on notice pay recovery?
The question was litigated. CBIC Circular 178/10/2022-GST and later advance rulings point to it not being taxable, but advance rulings bind only the applicant. The page adds no GST.
Related calculators
References
- Central Board of Indirect Taxes and Customs. Circular No. 178/10/2022-GST, 3 August 2022: GST applicability on liquidated damages, compensation and penalty arising out of breach of contract or other provisions of law; forfeiture of salary or payment under an employment bond for leaving before the agreed period is not consideration for tolerating an act.
- Madras High Court. GE T&D India Ltd v. Deputy Commissioner of Central Excise, 2020: notice pay recovered from employees was not consideration for a taxable service (service tax).
- Gujarat Appellate Authority for Advance Ruling. Amneal Pharmaceuticals Pvt Ltd, Advance Ruling (Appeal) No. GUJ/GAAAR/APPEAL/2022/01, 9 February 2022: members differed on the 2020 ruling that notice pay was taxable.
- Maharashtra Authority for Advance Ruling. Ferrero India Pvt Ltd, GST-ARA-62/21-22/24-25/B-172, 27 March 2025: notice pay recovered from employees is not a supply.