What is a notice period shortfall deduction?
Most employment contracts require a notice period (commonly 30, 60, or 90 days) before an employee's last working day. If they leave earlier — with the employer's agreement — the employer typically deducts pay for the days not served, calculated as a per-day rate (monthly salary ÷ 30) multiplied by the shortfall days. Some companies call this a "notice period buyout" when the employee pays it directly instead.
What goes into a Full & Final settlement?
An F&F settlement totals up everything owed to a departing employee — pending salary for days worked in their last month, encashment of unused earned leave, and gratuity if they've completed 5+ years of service — then subtracts anything owed back, like a notice period shortfall, outstanding loans, or unreturned company assets. The net figure is what the employee actually receives.
Is leave encashment taxable?
For government employees, leave encashment on retirement or resignation is fully tax-exempt. For private-sector employees, it's exempt up to the least of: the amount actually received, ₹25,00,000 (the limit under section 19 of the Income-tax Act, 2025, earlier 10(10AA)), or 10 months' average salary — anything above that is taxed as regular salary income.