What Is a Notice Period Buyout?
When you resign, your appointment letter typically requires you to serve a notice period — commonly 30, 60, or 90 days in Indian IT and services companies. If you want (or need) to leave before that period ends, most employers allow you to "buy out" the remaining days by paying a calculated amount instead of working them.
This buyout is standard practice, not a penalty — it compensates your employer for the notice they won't get to use for handover or hiring a replacement. It's usually recovered in one of two ways:
- Deducted from your full and final settlement (last salary, leave encashment, etc.)
- Paid directly by you if the settlement isn't enough to cover it
The Buyout Formula — 26 Working Days, Not 30
Most companies calculate your daily salary rate using 26 working days per month, not the calendar month length (30 or 31 days). This is a carryover convention from how many Indian payroll systems compute per-day salary for leave and loss-of-pay deductions.
Buyout cost = Per-day rate × Remaining notice days
This detail matters: dividing by 26 instead of 30 makes each day of buyout roughly 15% more expensive than a naive calendar-day calculation would suggest. Always check which divisor your company's HR policy actually uses — it's occasionally 30, though 26 is far more common.
Basic Salary vs Gross Salary — The Policy That Changes Everything
This is the single biggest factor in how much your buyout actually costs, and it's rarely explained clearly at the time of joining.
- Calculated only on your basic pay (usually 40-50% of CTC)
- Significantly cheaper for the employee
- More common in traditional IT services companies
- Example: ₹35,000 basic → ₹1,346/day → ₹40,385 for 30 days
- Calculated on your full monthly gross (basic + HRA + allowances)
- Can be 2x or more expensive than a basic-only buyout
- More common in startups and product companies
- Example: ₹80,000 gross → ₹3,077/day → ₹92,308 for 30 days
Note: on mobile the boxes stack vertically.
Real Buyout Examples by CTC and Notice Period
Assuming a standard 40% basic salary structure (the same assumption used throughout this site's calculators):
| Annual CTC | Notice period | Buyout on basic salary | Buyout on gross salary |
|---|---|---|---|
| ₹8 LPA | 30 days | ₹30,770 | ₹73,366 |
| ₹15 LPA | 60 days | ₹1,15,385 | ₹2,78,758 |
| ₹25 LPA | 60 days | ₹1,92,307 | ₹4,67,365 |
| ₹40 LPA | 90 days | ₹4,61,537 | ₹11,25,415 |
These assume a standard salary structure — use the Notice Period Cost Calculator with your exact gross, basic, and notice period for a precise number.
How to Reduce or Avoid Your Buyout Cost
- Negotiate a shorter notice period upfront — before signing your current offer letter, or during an appraisal cycle, ask to reduce a 90-day notice to 60 or 45 days.
- Ask your new employer for a joining bonus that specifically covers the buyout — this is a very common ask in Indian tech hiring and is usually well received.
- Time your resignation date carefully — days already served in the current month count toward your notice period, so resigning early in a month (rather than mid-month) can reduce the buyout days needed.
- Ask about early release — if your team can arrange a replacement or handover quickly, many managers will approve an early release with partial or zero buyout, especially for good performers leaving on good terms.
- Check if leave encashment offsets it — unused earned leave is often encashed in your final settlement and can partially or fully cover the buyout amount.
Is the Notice Period Buyout Amount Taxable?
The buyout amount itself — what you pay your current employer — is not tax-deductible for you as an individual; there's no provision to claim it against your taxable income.
If your new employer reimburses this cost as part of your joining process (common when it's bundled into a "joining bonus"), that reimbursement is treated as taxable salary income in the year it's paid — the same as any other cash component of your CTC. It isn't a tax-free relocation-style allowance.
5 Things to Check Before You Resign
- Is the buyout calculated on basic or gross? Get this in writing from HR — don't rely on verbal confirmation.
- What's the exact working-day divisor used? 26 is standard, but confirm — some companies use 30.
- Does your notice period reset after an internal transfer or promotion? Some appointment letters extend notice periods on level changes.
- Will unused leave be encashed before or after the buyout deduction? This affects your final take-home from the settlement.
- Is there a probation-period notice clause? Many companies have a shorter (or zero) notice/buyout requirement during probation — check if it still applies to you.