Estimate buyout as gross monthly pay prorated by the number of days in a chosen calendar month. Your contract may define a different method.
Reviewed July 2026 · FY 2026–27 (AY 2027–28) tax slabs in engine · Methodology
This is a gross estimate — taxes and recoveries are not applied (see accuracy card).
Engine snapshot: ₹90,000/month gross, 45 notice days, month 3/2025 (31 days). Daily rate ₹2,903.23 → buyout ₹1,30,645 gross.
This model divides by the calendar days in that month. February vs March changes the daily rate.
When an employee in India leaves a job without serving the full contractual notice period, the shortfall is typically offset by a "notice period buyout" or "notice pay" — a deduction from the final settlement equal to the salary that would have been earned during the unserved notice days. Similarly, if the employer asks the employee to leave without serving notice, the employer pays the employee an equivalent amount as notice pay in lieu.
The question of what "salary" means in this context is where variation enters. Most employment agreements define notice pay as the basic monthly salary, or the "gross monthly salary" as defined in the contract. Some contracts specify CTC/12. Variable pay, bonuses, and allowances are typically excluded from notice pay calculations — but this depends entirely on your employment agreement wording. Reading your appointment letter carefully before negotiating a short exit is essential.
The calculation itself is usually straightforward: if your contractual notice period is 90 days and you served 30, the buyout covers 60 days. Most contracts calculate this as gross monthly salary × (shortfall days ÷ days in the month), using actual calendar days in the relevant month, not working days. Some employers use a standard 30-day denominator regardless of the calendar month. This calculator uses a configurable per-day rate so you can try both methods.
Notice period waivers are common in practice. If your employer agrees to waive the notice period without charging you, no buyout is deducted. This often happens when a new employer is paying the buyout on your behalf, or when the employer has a pressing need to free up your role. The buyout arrangement, if charged, is typically not a tax-deductible expense for the employee — check with a CA if the amounts are significant.
A notice period buyout (also called PILON — Payment In Lieu Of Notice) occurs when either party chooses to waive the obligation to work out the notice period and instead pays the equivalent salary. Most Indian employment contracts specify a 30, 60, or 90-day notice period.
There are two distinct scenarios:
The buyout amount is typically calculated as: (Gross Monthly Salary ÷ 30) × Number of Days of Notice Not Served. Some employers use the calendar days definition (30 days/month), others use working days (22–26/month), which can change the amount by 10–15%.
Your offer letter or HR policy document specifies which definition applies. If it is silent, 30 calendar days per month is the more common interpretation.
Example: ₹90,000/month gross salary, 60-day notice period, serving 30 days and buying out the remaining 30 days. Buyout amount = (₹90,000 ÷ 30) × 30 = ₹90,000. The new employer who reimburses this typically processes it as a non-taxable joining benefit, though the treatment varies.
When you (the employee) pay the employer notice buyout, this payment is generally not deductible from your income for tax purposes — it comes from post-tax money.
When the employer pays you (termination buyout), it is treated as salary income in the year of receipt and is taxable at your applicable slab rate. It will appear in your Form 16 and must be declared in your ITR. There is no special exemption for notice pay received on termination (unlike gratuity or certain retrenchment compensation under Section 10(10B)).
Notice period negotiation is one of the more nuanced parts of a job switch. From the hiring company's perspective, they want you early. From your current employer's perspective, they need handover time. From your financial perspective, you care about: