Payroll & statutory · Updated September 2026
Notice pay recovery is the amount an employer deducts when an employee resigns but does not serve the full notice period set in their contract. If your notice period is 60 days and you serve 40, the employer recovers pay for the 20 unserved days, usually from your full and final settlement.
The contract decides the base. Some employers recover on basic salary for the shortfall days, others on gross, and a few on full CTC. The per-day rate is the chosen base divided by the days in the month, multiplied by the number of unserved days.
Example: gross salary Rs 90,000 a month, 20 days of notice not served, recovery on gross. Per-day is Rs 90,000 / 30 = Rs 3,000, so the recovery is Rs 60,000, netted against whatever the employer owes you.
On GST, a CBIC circular in 2022 clarified that notice pay recovery is not a supply and is not subject to GST, settling years of dispute. On income tax, the common position is that the recovered amount reduces your taxable salary for the year, since you never received it. Some tax authorities have contested this, so retain the settlement statement that shows the deduction, and reflect the net salary in your return.
Yes, this is common. The new employer reimburses the recovery, sometimes treating it as a joining cost. It is still taxable as your income unless structured carefully.
Yes. Serving notice or buying it out is usually at the employer’s discretion, not the employee’s right, unless the contract says otherwise.
They are two sides of the same thing. Recovery is the employer deducting it; buyout is the employee (or the next employer) paying it.
Work out the figure with the Notice Period Buyout Calculator, check the notice period itself with the Notice Period Calculator, and read our guide to notice periods.