Laid off? What money you are owed, and how long it lasts

A final settlement usually carries salary for days worked, notice pay where you are not asked to serve notice, encashment of unused leave, any bonus due, and gratuity after five years of service. On ₹50,000 a month of basic and DA and 6 years 8 months served, gratuity under the Act comes to ₹2,01,923.

What a final settlement usually contains

Salary for the days worked in the last month. Notice pay, where the employer ends the job without letting you work the notice period your contract sets. Encashment of earned leave not yet taken, if your employer’s leave policy pays it out. Any bonus or variable pay already earned under your terms. And gratuity, once five years of continuous service are complete.

Some employers add a severance amount on top. That depends on the company’s own policy or on what is agreed, so the settlement statement HR sends is the document to check every line against. Your appointment letter sets the notice period and the leave rules it should follow.

Gratuity, worked

Gratuity under the Act is 15 days of wages for every year of service, counted on a 26-day month: monthly wages × 15 ÷ 26 × years. A final stretch of six months or more counts as a full year.

With ₹50,000 a month of basic and DA and 6 years 8 months of service, the eight months round up to a seventh year, and gratuity is ₹2,01,923. At 6 years 4 months, the four months do not count, and it is ₹1,73,077. At 4 years 11 months, a permanent employee has not yet completed five years, and nothing is payable. A fixed-term employee qualifies after one year of the contract.

Gratuity = monthly wages × 15 ÷ 26 × years of service

How the tax works on each part

Salary for days worked, notice pay and bonus are taxed as salary, and tax is usually deducted from them before they are paid. Gratuity under the Act is tax-free up to ₹20 lakh across a working life for most private-sector employees. Part of leave encashment paid on leaving a job can also be tax-free, within limits that depend on salary and years served.

The settlement is often paid in the month you leave, so that month’s tax deduction can look large. Your annual return is where the year’s tax is settled, and the old vs new regime calculator shows both regimes on your own figures.

How long it all lasts

Add the settlement, after tax, to the money you could reach quickly, then divide by what leaves your account each month, EMIs included. ₹6,00,000 of savings against ₹55,000 a month is 10.9 months. A ₹2,00,000 settlement on top makes ₹8,00,000, which is 14.5 months.

Two costs often start on the last day of a job: health cover the employer provided, and any life cover that came with it. Both are worth pricing in early, because the figure above is only as good as the monthly outgoings it divides by.