Short answer: A notice period buyout means paying your employer the salary for the notice days you will not serve, so you can leave early with a clean exit. In India it usually costs about one month's basic — sometimes gross — per month of notice skipped; no GST applies to the recovery (CBIC Circular 178/10/2022), and your next employer often reimburses it as a joining bonus with a clawback. The catch: a buyout is not a right — it happens only if your contract allows it and your employer agrees.
Your notice period's length comes from your appointment letter, not a single national law: startups typically ask 30 days, mid-size companies 60, and large IT services firms (TCS, Infosys, Wipro and their peers) commonly 90. State Shops and Establishments Acts set minimums for some roles but cap nothing for the rest. Product companies and GCCs, meanwhile, often want candidates to join within 30 days — so the gap gets settled in time or money. The buyout is the money route, and it is almost always netted in your full and final (F&F) settlement against pending salary, leave encashment and any gratuity.
What exactly is a notice period buyout — and is it your right?
A buyout is a mutual agreement to end the employment early with the shortfall in notice paid in money: you buy the calendar days you are not serving, at the rate your contract sets. Your employer can say yes, yes-with-conditions, or no. Policies differ on how much discretion managers hold — Hexaware's publicly posted Employee Separation Policy (effective 8 January 2025), for example, sets 90 days' notice for all India employees and states that an employee "cannot unilaterally decide to buy out the notice period": early release is management discretion, with the shortfall paid at monthly basic salary.
So read your own exit clause before counting on anything. If it mentions "salary in lieu of notice," the only question that matters is what salary means. If it says nothing about a buyout, treat it as negotiable — not automatic.
How much will a buyout cost you?
Buyout = unserved notice days × (monthly salary ÷ 30)
The convention is a 30-day month; the variable that swings your bill by lakhs is the base — basic or gross. Take a ₹90,000 monthly gross with a ₹36,000 basic (a common 40% split; our guide to CTC vs in-hand salary shows how basic is carved out of CTC). You give 90 days' notice and leave after 45, so 45 days are unserved:
| Basis in your contract | Monthly base | Unserved days | Buyout |
|---|---|---|---|
| Gross salary | ₹90,000 | 45 | 45 × ₹3,000 = ₹1,35,000 |
| Basic salary (40% of gross) | ₹36,000 | 45 | 45 × ₹1,200 = ₹54,000 |
Same exit, ₹81,000 of difference, decided by one clause. If your letter says "salary in lieu" without defining salary, you will argue basic while HR argues gross — read the clause before you resign, not after.
The F&F then nets everything: pay for days worked, leave encashment and gratuity (after five years) on one side; the buyout, bonds and advances on the other. The net can be negative on a short tenure with little leave — far better to know that number in advance.
Who actually pays — you or your new employer?
Increasingly, the new employer. Indian hiring guides through 2026 report that many product companies, GCCs and funded startups offer a "notice buyout reimbursement" — sometimes capped, usually against proof, and often not advertised, so you have to ask. If the new employer pays, expect a joining bonus structure with a clawback: leave within the first year and you repay it. The window and mechanics belong in writing before you resign — a recruiter's "we'll figure it out" is not a commitment. And the money is taxable salary in your hands, TDS deducted under Section 192: a ₹1,00,000 reimbursement is ₹1,00,000 of income, not a gift.
If your new employer is itself an IT services company, don't count on it — service firms rarely pay to speed up a joiner when candidates who can start in 30 days are plentiful. The offer-stage negotiation playbook covers how to trade for this before you sign.
Is a notice period buyout taxed in India?
GST: settled — no tax. CBIC Circular No. 178/10/2022-GST (3 August 2022) clarified that notice pay recovery is a contractual consequence in the course of employment — liquidated damages for a shorter notice, not consideration for a "supply" — so no GST applies. Employers should not charge 18% or issue a tax invoice for it, and Maharashtra's Authority for Advance Ruling reaffirmed the position in the Ferrero India matter (April 2025). If your F&F adds GST to the buyout line, push back with the circular.
Income tax: genuinely unsettled — know both positions. In Nandinho Rebello v DCIT (ITAT Ahmedabad, 2017), the tribunal held that salary recovered as notice pay was never actually received, so only the net amount is taxable. The department's older view is the opposite — salary is taxable when due, and Section 16 offers no deduction for notice pay recovery — and the CBDT has adopted neither. Where resignation and recovery fall in the same financial year, most payrolls compute TDS on the net figure and the Form 16 reflects it; if the recovery lands after your Form 16 was issued, ask for the computation receipt and take it to your tax adviser. It rests on case law, not a circular — nobody can promise the outcome.
What does the F&F look like since 21 November 2025?
The Code on Wages, 2019 came into force on 21 November 2025, and Section 17(2) now requires wages due on separation to be paid within two working days of the exit — dramatically tighter than the month-plus timelines in many legacy HR policies still circulating (Hexaware's promises F&F within 45 working days). The two-day clock covers wages; non-wage dues and clearances can still lag. Know the rule so you know when to start following up.
Your relieving and experience letters typically issue once dues are settled, and withholding them while a recovery is unpaid is common — which matters, because your next employer's background check asks for them. The date on the relieving letter is the date that counts; a verbal "you can go" is not an exit.
How do you negotiate an early exit?
- Ask on resignation day, with a handover plan. The manager's fear is continuity, not the calendar — walk in with a written knowledge-transfer plan. Hiring guides through 2026 consistently report that managers approve clean, documented exits far more often than people expect: 90 days down to 60 is a reasonable single ask; 90 down to 30 is hard unless you are on the bench or the role is being restructured.
- Check leave adjustment. Some companies let accrued earned leave set off against notice, shortening calendar time with no money changing hands. Ask HR what yours allows.
- Offer the buyout — especially where the new employer reimburses, this turns an emotional negotiation into arithmetic.
- Push the joining date too. Moving your new start by two to four weeks is often easier for everyone than compressing a 90-day notice by 60.
- Use the formal process, then escalate. Large services firms run published early-release workflows — a manager's shrug is not the final word.
Scripts for the two conversations:
"I have resigned with a 90-day notice. If I complete full documentation and handover of [scope] by [date], can we agree an earlier last date? I am prepared to pay the applicable buyout for the remaining days as per policy."
"My current notice period is 90 days and I am negotiating an early release. If that does not fully work out, would [company] be open to a notice-period buyout reimbursement?"
If your employer counters instead, our counter-offer decision guide covers whether to take it — the notice period is usually your strongest card in that conversation too.
What happens if you just walk out?
- The recovery happens anyway. If your contract permits, the shortfall is deducted from your F&F — you pay it regardless, minus the goodwill.
- Documents get complicated. Relieving and experience letters can be withheld while a recovery is pending, and background checks at the next employer look at how you exited; a "left without serving notice" flag is a real risk.
- Overlapping employment is messy. Starting the new job before your formal exit can create duplicate PF contributions and payslip mismatches that surface months later.
- Legal escalation is rare but real. Courts will not force you to keep working, but recovery of money due under a contract is enforceable; companies usually skip litigation on cost grounds, which is why it rarely blows up — not a reason to gamble.
FAQ: notice period buyouts in India
What is a notice period buyout in India?
A mutual agreement to end employment early, with you paying the salary for the notice days you do not serve — normally adjusted in your full and final settlement.
How much does a notice period buyout cost?
Unserved days × (monthly base ÷ 30). On ₹90,000 gross with ₹36,000 basic, leaving 45 days early costs ₹54,000 on a basic basis or ₹1,35,000 on a gross basis — the clause decides which.
Can my employer refuse a notice period buyout?
Yes — it is an agreement, not a right. Some policies allow early release with a paid shortfall; others state you cannot buy out unilaterally, as Hexaware's separation policy does. A strong handover plan improves your odds.
Is notice period buyout taxable in India?
No GST — CBIC Circular 178/10/2022 settled that. Income tax is less settled: ITAT's Nandinho Rebello ruling supports taxing only the net amount, the due-basis view says gross, and the CBDT has adopted neither. Keep every receipt.
Does my new employer have to pay the buyout?
No, there is no obligation — but many product companies, GCCs and funded startups reimburse it (often as a clawback joining bonus) and simply do not advertise. Ask directly, and get the amount and clawback in writing.
Will I get my relieving letter if I buy out my notice period?
Yes — that is the point of the clean route: the relieving letter confirms your last working day and the experience letter your tenure, both needed for the next employer's background check. Settle what the policy asks, then follow up until both are in hand.
Key takeaways
- A buyout is paying for unserved notice days so you can exit early — mutual agreement, not a right, governed by your appointment letter.
- Cost is unserved days × (monthly base ÷ 30); basic versus gross is a 2.5× swing on a typical split, so read the clause first.
- No GST on the recovery (CBIC Circular 178/10/2022); income-tax treatment sits between an ITAT ruling and the due-basis view — document everything.
- Many new employers reimburse the buyout without advertising it — get it in writing, expect a clawback, count it as taxable salary.
- Since 21 November 2025, final wages are due within two working days of exit; negotiate early release with a handover plan, on resignation day.