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New: 2-Day FnF Payment Rule Now Effective

Every Settlement & Exit Calculator Indian HRs Need

Gratuity, FnF settlement, leave encashment, notice period & statutory bonus — all on one page with the formulas, legal limits, and compliance deadlines that matter.

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Updated for Code on Wages 2019 & Payment of Gratuity Act · Last verified October 2026 · salarybox.in

Key Numbers Every HR Should Know

Settlement rules, exemption limits, and payment deadlines at a glance

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Rule Number Legal Reference
FnF Payment Deadline 2 working days Code on Wages 2019, Section 17(2)
Gratuity Eligibility 5 years continuous service Payment of Gratuity Act 1972, S.4
Gratuity Formula (15 × last drawn salary × years) ÷ 26 S.4(2), Gratuity Act
Gratuity Tax Exemption ₹20,00,000 Section 10(10)(iii), IT Act
Leave Encashment Tax Exemption ₹25,00,000 Section 10(10AA), IT Act
Gratuity Payment Deadline 30 days from due date S.7(3), Gratuity Act
Bonus Eligibility (salary cap) ₹21,000/month Payment of Bonus Act 1965, S.2(13)
Minimum Bonus 8.33% of salary S.10, Payment of Bonus Act
Maximum Bonus 20% of salary S.11, Payment of Bonus Act
SalaryBox

Last verified October 2026 · Exemption limits apply to non-government employees · Always verify with your tax advisor for specific cases.

Settlement & Exit Calculators

Click any calculator to run the numbers for your employee's exit

FnF

Full & Final Settlement Calculator

Calculate FnF →

Compute the complete settlement amount — pending salary, leave encashment, gratuity, bonus, notice period recovery, and all deductions in one go.

Must pay within 2 working days Covers all exit components TDS auto-calculated
₹

Gratuity Calculator

Calculate Gratuity →

Calculate gratuity for employees with 5+ years of service using the statutory formula. Shows tax exemption and payable amount.

Formula: (15 × salary × years) ÷ 26 Tax-free up to ₹20L Pay within 30 days
EL

Leave Encashment Calculator

Calculate →

Calculate the cash value of unused earned/privilege leave at the time of resignation, retirement, or termination.

Tax-free up to ₹25L on retirement Based on basic salary
NP

Notice Period Calculator

Calculate →

Compute notice period recovery or pay-in-lieu amount when an employee doesn't serve the full notice. Works for both employer and employee side.

As per employment contract Recovery or pay-in-lieu
B

Statutory Bonus Calculator

Calculate →

Check eligibility and calculate statutory bonus under the Payment of Bonus Act. Includes pro-rata calculation for mid-year exits.

Minimum 8.33% · Maximum 20% Salary cap ₹21,000/month

Full & Final Settlement Checklist

8 steps from resignation to final payment — don't miss any

1
Accept Resignation / Issue Termination Letter Acknowledge in writing with confirmed last working day. Start the exit process documentation.
2
Calculate Last Working Day & Notice Period Recovery Determine if full notice is served. If not, compute notice period recovery or pay-in-lieu amount.
3
Compute Leave Encashment for Unused Leaves Calculate cash value of unused earned/privilege leave based on basic salary. Tax-free up to ₹25 lakh on retirement.
4
Check Gratuity Eligibility (5+ Years Service) If eligible, calculate using (15 × last drawn salary × years) ÷ 26. Employer must pay within 30 days.
5
Calculate Statutory Bonus (If Applicable) Pro-rata bonus for the period worked in the current year. Applicable if salary ≤ ₹21,000/month.
6
Deduct TDS per Applicable Slab Deduct tax on salary, leave encashment (if taxable), and bonus. Issue Form 16 with final figures.
7
Prepare FnF Statement & Get Employee Sign-Off Itemized statement with every component and deduction. Employee acknowledges and signs. Keep a copy.
8
Release Payment Within 2 Working Days Under Code on Wages 2019, Section 17(2), final settlement must be paid within 2 working days of the last working day.
Non-compliance penalty: Delayed FnF payment can lead to penalties under the Code on Wages 2019 and potential legal action by the employee. Late gratuity payment incurs simple interest at the rate notified by the government (currently 10% p.a.).

Key Settlement Rule Changes (2025-26)

1. 2-Day FnF Payment Deadline

Code on Wages 2019, Section 17(2) mandates full & final settlement within 2 working days of the employee's last day. Non-compliance attracts penalties. Calculate FnF →

2. Gratuity on Higher Basic

Under the new Labour Codes, basic must be ≥50% of CTC. Higher basic = higher gratuity liability for employers. Check impact →

3. Leave Encashment Exemption Raised

Tax exemption on leave encashment increased from ₹3 lakh to ₹25 lakh (Section 10(10AA)). Major relief for retiring employees. Calculate →

4. Revised 'Wages' Definition

Allowances exceeding 50% of total remuneration now count as wages — directly impacts gratuity, bonus, and leave encashment calculations.

Gratuity Calculation — Quick Reference

Payment of Gratuity Act, 1972

Monthly Salary5 Years10 Years15 Years20 Years
₹15,000₹43,269₹86,538₹1,29,808₹1,73,077
₹25,000₹72,115₹1,44,231₹2,16,346₹2,88,462
₹40,000₹1,15,385₹2,30,769₹3,46,154₹4,61,538
₹60,000₹1,73,077₹3,46,154₹5,19,231₹6,92,308
₹1,00,000₹2,88,462₹5,76,923₹8,65,385₹11,53,846
SalaryBox

Formula: (15 × last drawn salary × completed years of service) ÷ 26 · Salary = Basic + DA · Service >6 months in last year rounds up · Tax-free up to ₹20 lakh for non-government employees

Leave Encashment Tax Rules

Section 10(10AA), Income Tax Act

ScenarioTax TreatmentExemption Limit
During employmentFully taxable as salaryNo exemption
At retirement/superannuationExempt up to limit₹25,00,000
At resignation (non-govt)Exempt up to limit₹25,00,000
Government employeesFully exemptNo limit
On death / disabilityFully exemptNo limit
SalaryBox

Exemption is least of: (a) actual amount received, (b) 10 months' average salary, (c) cash equivalent of leave balance (max 30 days per year), (d) ₹25 lakh.

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Frequently Asked Questions

How many days does a company have to pay full and final settlement?
Under the Code on Wages 2019, Section 17(2), the employer must pay the full and final settlement within 2 working days of the employee's last working day. This applies to all cases — resignation, termination, or contract expiry. Non-compliance can attract penalties under the Code.
How is gratuity calculated in India?
Gratuity is calculated using the formula: (15 × last drawn salary × completed years of service) ÷ 26. "Last drawn salary" means basic + dearness allowance. Service of more than 6 months in the last year is rounded up to the next full year. The employee must have completed at least 5 years of continuous service to be eligible.
Is leave encashment taxable?
It depends on when you receive it. Leave encashment during employment is fully taxable as salary income. At retirement or resignation, it is exempt up to ₹25 lakh under Section 10(10AA). For government employees, leave encashment at retirement is fully exempt with no upper limit.
What is the gratuity exemption limit in 2025-26?
The gratuity tax exemption limit for non-government employees is ₹20 lakh under Section 10(10)(iii) of the Income Tax Act. Any gratuity amount exceeding ₹20 lakh is taxable as per the applicable income tax slab. Government employees have no upper limit on gratuity exemption.
Who is eligible for statutory bonus in India?
Under the Payment of Bonus Act 1965, employees earning up to ₹21,000 per month (basic + DA) are eligible for statutory bonus. The minimum bonus is 8.33% of salary and the maximum is 20%. Employees must have worked at least 30 days in the accounting year. The bonus is calculated on actual salary or ₹7,000/month, whichever is higher.
What happens if FnF is not paid within 2 days?
Delayed FnF payment can lead to penalties under the Code on Wages 2019. The employee can file a complaint with the Labour Commissioner. Additionally, if gratuity is delayed beyond 30 days, the employer must pay simple interest at a rate notified by the government (currently 10% p.a.) for the delay period under Section 7(3A) of the Payment of Gratuity Act.
What is included in full and final settlement?
A complete FnF settlement includes: (1) pending salary for days worked, (2) leave encashment for unused leaves, (3) gratuity if eligible, (4) statutory bonus pro-rata, (5) notice period pay or recovery, (6) reimbursements and arrears, minus deductions like TDS, PF contribution, loan recovery, and any assets not returned.
Can an employee claim gratuity before completing 5 years?
Generally, no. The Payment of Gratuity Act requires 5 years of continuous service for eligibility. However, there are two exceptions: (1) if the employee dies, and (2) if the employee becomes disabled. In these cases, gratuity is payable even if 5 years are not completed. Some companies also have more generous policies in their employment contracts.

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