How soon must the full and final settlement be paid?

It depends on the applicable law and state. The Code on Wages, in force since 21 November 2025, requires wages due on separation to be paid within two working days (s.17(2)), and gratuity has its own payment timeline. Check the current rules for your location.

Is leave encashment taxable at exit?

Leave encashment at retirement or resignation has a capped exemption for non-government employees under section 10(10AA) of the Income-tax Act. Check the current limit.

Should the employee sign a release with the settlement?

Many employers take an acknowledgement of receipt. Wording that waives future claims should be reviewed by a legal adviser before use.

Letter template

Full and final settlement statement format

The full and final statement lists everything payable to and recoverable from an employee who is leaving, and the net amount. This full and final settlement format shows each line so the employee can check it.

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Check before you rely on thisCheck the two-working-day limit for paying final dues under the Code on Wages 2019, s.17(2), and any state rule; gratuity eligibility and the payment timeline under the Payment of Gratuity Act 1972; the current tax exemption limits for leave encashment and gratuity; whether notice recovery uses basic or gross under the appointment terms; and that each recovery is a permitted deduction. Have any waiver or release wording reviewed by a legal adviser.

When it is issued and by whom

Payroll prepares it after the last working day, once the no dues clearance is complete and attendance and leave are frozen. HR reviews it and finance approves payment. It is shared with the employee along with, or before, the payment.

What it must contain

Salary for days worked in the final month.
Leave encashment as per policy.
Gratuity, if the employee is eligible under the Payment of Gratuity Act 1972, or a note that it is paid separately.
Statutory bonus, pending reimbursements and any variable pay due.
Recoveries: notice shortfall, advances, loans, unreturned assets.
TDS on the settlement and the net amount payable or recoverable.

How it relates to the relieving letter

The relieving letter confirms release from duty. The F&F statement is the money side of the same exit. They are often issued days apart. Keep the last working day identical in both, since every pro-rata calculation in the statement depends on it.

Watch for itRecovering notice pay on gross rather than basic, or the reverse, is a frequent dispute. Use whatever the appointment terms and notice policy specify, and show the calculation.

Template

The template, ready to adapt

Replace everything in [square brackets]. Have your own legal or HR adviser review the final wording for your organisation.

Template

[COMPANY NAME]
[Office address] | [Phone] | [Email]

Ref: [HR/FNF/YYYY/NNN]
Date: [DD Month YYYY]

FULL AND FINAL SETTLEMENT STATEMENT

Employee name: [Employee full name]
Employee code: [Code]
Designation: [Designation]
Department: [Department]
Date of joining: [DD Month YYYY]
Last working day: [DD Month YYYY]
Reason for separation: [Resignation / Termination / Retirement / Other]
Notice period required / served: [N] days / [N] days
PAN: [PAN]
Bank account: [Bank, account number ending XXXX]

A. EARNINGS
1. Salary for [N] days of [Month YYYY]: Rs. [Amount]
2. Leave encashment for [N] days, as per leave policy: Rs. [Amount]
3. Gratuity [if eligible; else write "Not applicable" or "Paid separately"]: Rs. [Amount]
4. Statutory bonus for [period], if applicable: Rs. [Amount]
5. Pending reimbursements: Rs. [Amount]
6. [Variable pay / incentive due, as per policy]: Rs. [Amount]
7. [Notice pay payable by company, if applicable]: Rs. [Amount]
Total earnings (A): Rs. [Amount]

B. DEDUCTIONS AND RECOVERIES
1. Provident fund (employee share) on final salary: Rs. [Amount]
2. Professional tax: Rs. [Amount]
3. Notice period shortfall of [N] days, as per the terms of your appointment: Rs. [Amount]
4. Outstanding salary advance / loan: Rs. [Amount]
5. Unreturned company property [item]: Rs. [Amount]
6. Income tax (TDS): Rs. [Amount]
7. [Other, with description]: Rs. [Amount]
Total deductions (B): Rs. [Amount]

NET AMOUNT [PAYABLE TO EMPLOYEE / RECOVERABLE FROM EMPLOYEE] (A - B): Rs. [Amount]
In words: [Amount in words]

Mode and date of payment: [Bank transfer on DD Month YYYY]

Notes
1. Provident fund withdrawal or transfer is to be initiated by the employee through the EPFO member portal.
2. Form 16 for the financial year [YYYY-YY] will be issued [by DD Month YYYY / as per the statutory timeline].
3. Workings for leave encashment, gratuity and notice recovery are attached.

Prepared by: [Name, Payroll]          Checked by: [Name, HR]
Approved by: [Authorised Signatory], [Designation]

EMPLOYEE ACKNOWLEDGEMENT
I have received this statement [and the amount of Rs. [Amount]]. [Any queries are noted below.]

Signature: ____________________
Name: [Employee full name]
Date: [DD Month YYYY]

FAQs

Questions about this page

It depends on the applicable law and state. The Code on Wages, in force since 21 November 2025, requires wages due on separation to be paid within two working days (s.17(2)), and gratuity has its own payment timeline. Check the current rules for your location.
Leave encashment at retirement or resignation has a capped exemption for non-government employees under section 10(10AA) of the Income-tax Act. Check the current limit.
Many employers take an acknowledgement of receipt. Wording that waives future claims should be reviewed by a legal adviser before use.

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What it must contain

Salary for days worked in the final month.

Leave encashment as per policy.

Gratuity, if the employee is eligible under the Payment of Gratuity Act 1972, or a note that it is paid separately.

Statutory bonus, pending reimbursements and any variable pay due.

Recoveries: notice shortfall, advances, loans, unreturned assets.

TDS on the settlement and the net amount payable or recoverable.

How it relates to the relieving letter

Watch for itRecovering notice pay on gross rather than basic, or the reverse, is a frequent dispute. Use whatever the appointment terms and notice policy specify, and show the calculation.

[COMPANY NAME] [Office address] | [Phone] | [Email] Ref: [HR/FNF/YYYY/NNN] Date: [DD Month YYYY] FULL AND FINAL SETTLEMENT STATEMENT Employee name: [Employee full name] Employee code: [Code] Designation: [Designation] Department: [Department] Date of joining: [DD Month YYYY] Last working day: [DD Month YYYY] Reason for separation: [Resignation / Termination / Retirement / Other] Notice period required / served: [N] days / [N] days PAN: [PAN] Bank account: [Bank, account number ending XXXX] A. EARNINGS 1. Salary for [N] days of [Month YYYY]: Rs. [Amount] 2. Leave encashment for [N] days, as per leave policy: Rs. [Amount] 3. Gratuity [if eligible; else write "Not applicable" or "Paid separately"]: Rs. [Amount] 4. Statutory bonus for [period], if applicable: Rs. [Amount] 5. Pending reimbursements: Rs. [Amount] 6. [Variable pay / incentive due, as per policy]: Rs. [Amount] 7. [Notice pay payable by company, if applicable]: Rs. [Amount] Total earnings (A): Rs. [Amount] B. DEDUCTIONS AND RECOVERIES 1. Provident fund (employee share) on final salary: Rs. [Amount] 2. Professional tax: Rs. [Amount] 3. Notice period shortfall of [N] days, as per the terms of your appointment: Rs. [Amount] 4. Outstanding salary advance / loan: Rs. [Amount] 5. Unreturned company property [item]: Rs. [Amount] 6. Income tax (TDS): Rs. [Amount] 7. [Other, with description]: Rs. [Amount] Total deductions (B): Rs. [Amount] NET AMOUNT [PAYABLE TO EMPLOYEE / RECOVERABLE FROM EMPLOYEE] (A - B): Rs. [Amount] In words: [Amount in words] Mode and date of payment: [Bank transfer on DD Month YYYY] Notes 1. Provident fund withdrawal or transfer is to be initiated by the employee through the EPFO member portal. 2. Form 16 for the financial year [YYYY-YY] will be issued [by DD Month YYYY / as per the statutory timeline]. 3. Workings for leave encashment, gratuity and notice recovery are attached. Prepared by: [Name, Payroll] Checked by: [Name, HR] Approved by: [Authorised Signatory], [Designation] EMPLOYEE ACKNOWLEDGEMENT I have received this statement [and the amount of Rs. [Amount]]. [Any queries are noted below.] Signature: ____________________ Name: [Employee full name] Date: [DD Month YYYY]