Labour Law · HR & Payroll · 2026

Full and Final Settlement Rules in India (2026 Guide)

Payment of Wages Act · Payment of Gratuity Act · Code on Wages · State Shops & Establishments Acts — every law, timeline, and entitlement explained

Written by Ananya Krishnan

Senior HR Payroll & Compliance Editor · OfficeDraft

Reviewed by Adv. Rohit Mehra

Employment Lawyer · 14 years labour law practice

Published: 15 Jan 2026

Last reviewed: 28 Jun 2026

Gratuity Act 1972Code on Wages 2019State-wise deadlinesFree F&F calculatorLaw-finder wizardLabour Commissioner process

Full and final settlement rules in India determine exactly what an employer owes an employee on exit — and by when. Unlike a single codified "F&F Act," the rules are assembled from several statutes: the Payment of Wages Act, 1936, the Payment of Gratuity Act, 1972, the Code on Wages, 2019, your state's Shops and Establishments Act, and the Income Tax Act, 1961 for deductions. Most online guides quote a single round number — "45 days" — without explaining where that figure actually comes from, or that no central law currently enforces one uniform deadline across India.

This guide — written by an HR payroll compliance editor and reviewed by a practising employment lawyer — breaks down exactly which law applies to your situation, what a compliant settlement must include, how gratuity and leave encashment are actually calculated, and what to do if your employer delays payment. It includes a free interactive F&F calculator and a law-finder tool built specifically for this article.

5 yrs

Gratuity eligibility

Payment of Gratuity Act, Sec. 4(1)

30 days

Gratuity payment deadline

Once it becomes due, Sec. 7(3)

No fixed

Central F&F deadline

State Acts/contract govern instead

F&F Settlement Calculator

Estimate your settlement before reading the legal detail below — enter your salary, service dates, leave balance, and notice period to see a full breakdown.

Full & Final Settlement Calculator

Enter your details to estimate your F&F payout — salary, leave encashment, gratuity, notice pay

Used for gratuity & leave encashment calculation, not gross CTC

What is Full & Final Settlement?

Full and final settlement (F&F) is the complete process and payment an employer makes to an employee on exit — whether by resignation, termination, retirement, or end of contract. It consolidates every amount owed (pending salary, leave encashment, gratuity, bonus) and nets it against every legitimate deduction (notice pay shortfall, asset recoveries, loan balances) into a single final payment, accompanied by a relieving letter and experience certificate.

It is not itself the name of a law — it is a payroll process governed by multiple labour and tax statutes working together, covered in detail in the next section.

Full and Final Settlement Rules India: Which Laws Actually Govern It?

There is no single "Full and Final Settlement Act" in India. Instead, F&F rules are drawn from a combination of central and state laws, each governing a different component of the payout:

LawWhat it governs in F&F
Payment of Wages Act, 1936Timely payment of earned wages; permissible deductions (Section 7); legal recourse for delayed wages.
Payment of Gratuity Act, 1972Statutory gratuity after 5 years' continuous service; 30-day payment deadline once due; interest on delay.
Code on Wages, 2019Once notified, sets a 2-working-day F&F deadline after resignation, termination, or removal — consolidates 4 wage laws including the Payment of Wages Act.
State Shops & Establishments ActDefault rules for non-factory establishments on termination procedure and wage payment timing — varies by state.
Industrial Disputes Act, 1947 / Industrial Relations Code, 2020Retrenchment compensation and due process for employees classified as "workmen."
Payment of Bonus Act, 1965Statutory bonus entitlement for eligible employees in establishments with 20+ employees.
EPF & MP Act, 1952 / EPF SchemePF contribution finalisation, date-of-exit marking, and withdrawal/transfer eligibility.
Employees' State Insurance Act, 1948ESI contribution finalisation for covered employees.
Income Tax Act, 1961TDS on salary and leave encashment; gratuity exemption up to ₹20 lakh under Section 10(10).
Where the law is silent:No central statute currently fixes one binding F&F deadline applicable to every employer nationwide. The Code on Wages, 2019 sets a 2-working-day standard, but as of mid-2026 it is not yet uniformly enforced in every state pending the notification of accompanying state rules. Until full enforcement, the operative deadline is whichever is more specific between your state's Shops and Establishments Act and your employment contract or company policy.

Is There a Legal Deadline for F&F Settlement?

Partially. Two components have explicit statutory deadlines; the rest depend on state law or contract:

Gratuity — 30 days (has a fixed deadline)

Section 7(3) of the Payment of Gratuity Act, 1972 requires the employer to pay gratuity within 30 days from the date it becomes payable. Section 7(3A) adds that delayed payment attracts simple interest from the due date until actual payment.

Code on Wages, 2019 — 2 working days (not yet uniformly enforced)

Section 17 read with the wage payment provisions requires final dues to be paid within 2 working days of removal, dismissal, retrenchment, or resignation. This is the strictest proposed timeline, but it applies in full only where the central Code and the corresponding state rules have both been notified and brought into force.

Other components — no fixed central deadline

Pending salary, leave encashment, and bonus are not given a separate F&F-specific deadline under central law. They fall back to your state Shops and Establishments Act timeline (see state comparison below) or the standard Payment of Wages Act cycle, whichever your employer is bound by.

State-Wise F&F Rules Comparison

Because no uniform central deadline is yet enforced, the timeline for non-gratuity F&F components depends on the state Shops and Establishments Act registered to your employer's establishment:

StateApplicable ActTimelineAuthority
MaharashtraMaharashtra Shops and Establishments Act, 2017Wages due within 7 days of termination of employmentMaharashtra Labour Commissionerate
KarnatakaKarnataka Shops and Commercial Establishments Act, 1961Wages payable on the next working day after termination in most cases; no extended grace period specifiedKarnataka Labour Department
Delhi (NCT)Delhi Shops and Establishments Act, 1954No fixed statutory F&F deadline; payment of wages provisions under the Payment of Wages Act apply by default (before 7th/10th of following month for ongoing dues)Delhi Labour Department
Tamil NaduTamil Nadu Shops and Establishments Act, 1947No separate F&F clause; final wages treated under standard wage payment timelines (7th/10th of following month)Tamil Nadu Labour Welfare & Skill Development Department
TelanganaTelangana Shops and Establishments Act, 1988No fixed statutory F&F deadline specified; company policy and contract typically governTelangana Labour Department
HaryanaPunjab Shops and Commercial Establishments Act, 1958 (as applicable to Haryana)No express F&F deadline; Payment of Wages Act timelines apply by defaultHaryana Labour Department
GujaratGujarat Shops and Establishments Act, 2019No express F&F deadline specified in the Act; company policy typically governs within a reasonable periodGujarat Labour & Employment Department
West BengalWest Bengal Shops and Establishments Act, 1963No express F&F deadline; standard wage payment timelines applyWest Bengal Labour Department

State Acts are periodically amended. Always confirm the current version applicable to your establishment's state of registration via the relevant state labour department before relying on a specific timeline.

Employer Obligations

  • ✓Calculate and disburse all earned wages, leave encashment, gratuity (if eligible), and bonus due.
  • ✓Itemise deductions clearly — notice pay shortfall, asset recovery, loan/advance balances — with the calculation method shown.
  • ✓Pay gratuity within 30 days of it becoming due, per Section 7(3) of the Payment of Gratuity Act, 1972.
  • ✓Mark the date of exit on the EPFO portal so the employee can withdraw or transfer PF.
  • ✓Deduct and deposit applicable TDS under the Income Tax Act, 1961, and issue Form 16 reflecting the final figures.
  • ✓Issue a relieving letter and experience certificate alongside the settlement.
  • ✓Comply with the termination notice and procedural requirements under the applicable state Shops and Establishments Act.

Employee Rights

  • ●Right to receive all earned wages regardless of whether the full notice period was served.
  • ●Right to a written, itemised settlement statement before being asked to sign a discharge/no-dues form.
  • ●Right to statutory gratuity after 5 years of continuous service, paid within 30 days of it becoming due.
  • ●Right to challenge unauthorised or excessive deductions under Section 7 of the Payment of Wages Act, 1936.
  • ●Right to file a complaint with the state Labour Commissioner for delayed or short payment.
  • ●Right to interest on delayed gratuity payment under Section 7(3A) of the Payment of Gratuity Act, 1972.

Need it in writing?

Generate a F&F Request or Settlement Letter

OfficeDraft generates a ready-to-send F&F settlement request letter, plus dedicated gratuity, leave encashment, and notice period calculators. Free to use.

Get F&F Letter Template →

Items Included in Full & Final Settlement

Pending salary

Payment of Wages Act, 1936

Salary earned up to the last working day, including any unpaid arrears from previous cycles.

Leave encashment

Company policy / state Shops & Establishments Act; tax treatment under Income Tax Act Sec. 10(10AA)

Unused earned/privilege leave converted to cash. No central law mandates encashment unless company policy or state rules require it — most companies do as standard practice.

Gratuity

Payment of Gratuity Act, 1972

Payable only after 5 years of continuous service. Formula: (Basic + DA) × 15/26 × completed years, capped at ₹20 lakh.

Bonus

Payment of Bonus Act, 1965

Statutory bonus applies to employees earning up to the wage ceiling prescribed under the Act, where the establishment employed 20+ persons in the accounting year.

Notice pay (recovery or payout)

Employment contract; Payment of Wages Act, 1936 governs lawful deduction limits

If notice isn't served, employer can recover proportionate pay. If employer terminates without notice, they typically owe pay in lieu.

Recoveries (assets, loans, advances)

Payment of Wages Act, 1936 Sec. 7 — permissible deductions

Deductions for company property, salary advances, or loans must be itemised and cannot exceed limits prescribed under Section 7.

PF & pension withdrawal/transfer

EPF Scheme, 1952 (under the EPF & MP Act, 1952)

Not part of the F&F cheque itself — processed separately via UAN; employer must mark date of exit on the EPFO portal.

ESI finalisation

Employees' State Insurance Act, 1948

Applicable if covered; employer must update contribution records up to the last working day.

TDS on settlement

Income Tax Act, 1961

Salary and leave encashment are taxed as income; gratuity is exempt up to ₹20 lakh under Section 10(10).

Use the dedicated tools for a precise, component-wise estimate: the Gratuity Calculator, Leave Encashment Calculator, and Notice Period Calculator.

Real Payroll Examples — Worked Calculations

Example 1: 6-year employee, resigns with full notice served

Basic + DA: ₹40,000/month. Service: 6 completed years. Leave balance: 12 days. Notice fully served.

Gratuity = (40,000 × 15 × 6) / 26 = ₹1,38,462

Leave encashment = (40,000 / 26) × 12 = ₹18,462

Notice pay deduction = ₹0 (fully served)

Net payable (excl. pending salary, tax) ≈ ₹1,56,924

Example 2: 3-year employee, resigns, serves only half the 60-day notice

Basic + DA: ₹50,000/month. Service: 3 years (gratuity not yet due). Leave balance: 8 days. Notice required: 60 days, served: 30 days.

Gratuity = ₹0 (under 5 years' service — not statutorily due)

Leave encashment = (50,000 / 26) × 8 = ₹15,385

Notice pay deduction = (50,000 / 26) × 30 days shortfall = ₹57,692

Net effect: notice recovery exceeds leave encashment — employee owes employer the balance

Example 3: 9-year employee, terminated, no notice served by employer

Basic + DA: ₹60,000/month. Service: 9 years. Leave balance: 25 days. Employer terminates without notice — owes pay in lieu of 30 days.

Gratuity = (60,000 × 15 × 9) / 26 = ₹3,11,538

Leave encashment = (60,000 / 26) × 25 = ₹57,692

Pay in lieu of notice (employer-owed) = (60,000 / 26) × 30 = ₹69,231

Net payable (excl. pending salary, tax) ≈ ₹4,38,461

Common Employer Mistakes

Releasing F&F without a written settlement statement

Employee cannot verify the calculation breakdown, increasing dispute risk and Labour Commissioner complaints.

Deducting notice pay without contractual basis

Violates Section 7 of the Payment of Wages Act, 1936 — unauthorised deductions can be reversed with penalty on complaint.

Withholding gratuity beyond 30 days without valid reason

Attracts statutory interest under Section 7(3A) of the Payment of Gratuity Act, 1972, and possible penalty under Section 9 for non-payment.

Not marking date of exit on the EPFO portal

Blocks employee's PF withdrawal or transfer, even though it isn't part of the cash F&F amount — a frequent post-exit complaint trigger.

Treating all leave as non-encashable by default

If company policy or the offer letter promises encashment, denying it breaches the contract — separate from any statutory requirement.

Applying a single national "45-day" rule to every employee

Misleading — the 45-day figure is a common payroll convention, not a binding central-law deadline; actual obligations stem from state Acts and contracts.

What Employees Should Check Before Signing

  • Confirm the full breakup: salary days, leave days encashed, gratuity, bonus, and every deduction line-itemised
  • Verify gratuity used the correct (Basic + DA) figure, not gross CTC
  • Check leave encashment count matches your own leave balance records (HRMS export)
  • Confirm notice pay deduction matches your actual contractual notice period, not a round number
  • Ask for the TDS computation and Form 16 / Form 12BA reflecting the settlement
  • Confirm date of exit has been updated on the EPFO portal (for PF transfer/withdrawal)
  • Get a relieving letter and experience certificate alongside the settlement, not before it
  • Do not sign a "no dues" or full-and-final discharge form until the actual payment has been credited

How to File a Complaint — Labour Commissioner Process

If your employer delays or withholds F&F payment beyond a reasonable period or your state's prescribed timeline, follow this escalation path:

1

Send a written reminder

Email HR and your reporting manager requesting the itemised settlement statement and payment date in writing. Keep this for evidence.

2

Send a formal legal notice

If there is no response within a reasonable period, a lawyer-drafted legal notice citing the Payment of Wages Act, 1936 and, if applicable, the Payment of Gratuity Act, 1972 often prompts faster resolution.

3

File a complaint with the state Labour Commissioner

Submit a written complaint to the Labour Commissioner's office in the state where your establishment is registered, under the applicable Shops and Establishments Act or the Payment of Wages Act.

4

File before the Controlling Authority (for gratuity specifically)

For unpaid or delayed gratuity, a separate application can be filed before the Controlling Authority appointed under the Payment of Gratuity Act, 1972, which can order payment with interest and penalty.

5

Approach the Labour Court / Industrial Tribunal

For employees classified as "workmen" under the Industrial Disputes Act, 1947, unresolved disputes can be raised before the Labour Court for adjudication.

Which Law Applies to My Settlement?

Use this tool to identify the specific laws, gratuity eligibility, and likely timeline for your own situation based on state, establishment type, service length, and exit type.

Which Law Applies to My F&F Settlement?

Answer 4 questions to see the exact Acts that govern your settlement

F&F Settlement Calculator (full tool)Most popular

Standalone calculator with downloadable breakup sheet

Gratuity Calculator

Section 4(2) formula — instant gratuity estimate

Leave Encashment Calculator

Calculate cash value of unused earned leave

Notice Period Calculator

Notice pay recovery or payout, by days served

F&F Settlement Letter Format

Editable request/reminder letter template

Salary Slip Generator

Generate compliant payslips referenced in F&F docs

Frequently Asked Questions — Full and Final Settlement Rules India

What is the legal time limit for full and final settlement in India?
There is no single central law that fixes one universal deadline for every employer in India. The Code on Wages, 2019 prescribes 2 working days from the last working day once fully notified and enforced — but as of mid-2026 enforcement varies by state. Until then, the practical deadline comes from your state Shops and Establishments Act (commonly 7 to 45 days depending on the state) or your employment contract, whichever is more specific. Gratuity has its own statutory deadline of 30 days from the date it becomes payable under Section 7(3) of the Payment of Gratuity Act, 1972.
Which law governs full and final settlement in India?
No single law covers the entire F&F process. It is governed by a combination of statutes: the Payment of Wages Act, 1936 for timely payment of earned wages, the Payment of Gratuity Act, 1972 for gratuity, the applicable state Shops and Establishments Act for termination and final payment timelines, the Code on Wages, 2019 once notified in your state, the Industrial Disputes Act, 1947 or Industrial Relations Code, 2020 for retrenchment of workmen, and the Income Tax Act, 1961 for TDS on the settlement amount.
Is gratuity mandatory in full and final settlement?
Gratuity is mandatory only if the employee has completed 5 years of continuous service, as required by Section 4(1) of the Payment of Gratuity Act, 1972 (relaxed to 4 years 240 days for employees in establishments working a 6-day week). Employees with less than the qualifying service are not statutorily entitled to gratuity, unless the employer's policy is more generous, or the employee's service ended due to death or disablement, in which case the 5-year requirement is waived.
Can an employer deduct notice pay from full and final settlement?
Yes, if the employment contract specifies a notice period and the employee resigns without serving it in full, the employer can recover pay in lieu of the unserved notice period from the F&F settlement. This must be calculated per the formula in the employment contract or company policy, and the deduction must be reasonable and proportionate to the shortfall — arbitrary or punitive deductions can be challenged under the Payment of Wages Act, 1936.
What happens if an employer delays full and final settlement?
An employee can first send a written reminder or legal notice to the employer. If the delay continues, the employee can file a complaint with the state Labour Commissioner under the applicable Shops and Establishments Act or the Payment of Wages Act, 1936, which allows claims for delayed wages plus compensation. For gratuity specifically, delayed payment beyond 30 days attracts statutory interest under Section 7(3A) of the Payment of Gratuity Act, 1972, and a separate complaint can be filed with the Controlling Authority appointed under the Act.
Is full and final settlement taxable in India?
Components of F&F are taxed differently under the Income Tax Act, 1961. Pending salary and leave encashment (for employees still in service or resigning) are taxed as regular salary income. Gratuity up to ₹20 lakh is exempt under Section 10(10) for private-sector employees covered by the Payment of Gratuity Act. Leave encashment on resignation is partially exempt under Section 10(10AA), subject to prescribed limits. Any severance or ex-gratia component may be taxed as profits in lieu of salary under Section 17(3), depending on its nature.
Do all states in India have the same full and final settlement timeline?
No. Because there is no single central deadline currently enforced uniformly, the timeline depends on the state Shops and Establishments Act applicable to the employee's place of work. For example, Maharashtra and Karnataka generally expect payment of wages due within 7 days of termination under their respective Acts, while other states allow longer windows. Always check the specific Act notified in the state where the establishment is registered.
Can I get full and final settlement after resignation without serving notice?
Yes, but the employer is entitled to deduct pay in lieu of the unserved notice period from your settlement, as agreed in your employment contract. You remain entitled to all other earned dues — pending salary for days worked, leave encashment, and gratuity if eligible — regardless of whether the full notice period was served, since these are separately earned entitlements, not contingent on notice compliance.

Know Exactly What You're Owed

Full and final settlement rules in India come from multiple laws working together — not one fixed national deadline. Use the calculator above to estimate your payout, the law-finder wizard to identify which Acts apply to your situation, and the dedicated gratuity, leave encashment, and notice period calculators for precise figures.

Calculate My F&F →Get Settlement Letter Template →

About This Guide — Sources & Methodology

Authors:Written by Ananya Krishnan (Senior HR Payroll & Compliance Editor, OfficeDraft) and reviewed for legal accuracy by Adv. Rohit Mehra (Employment Lawyer, 14 years' practice before Indian Labour Courts and High Courts).

Primary sources: Text of the Payment of Wages Act, 1936 via India Code; the Payment of Gratuity Act, 1972 via the Chief Labour Commissioner (Central); the Code on Wages, 2019via the Ministry of Labour & Employment; PF guidance from epfindia.gov.in; ESI guidance from esic.gov.in; and tax treatment from incometax.gov.in. State-wise timelines are drawn from the respective state Shops and Establishments Acts; always confirm the current version with the relevant state labour department via labour.gov.in.

Methodology:Each component of F&F was mapped to its specific governing statute and section number rather than presented as a single generic timeline. Worked examples use standard payroll convention (Basic + DA ÷ 26 working days) consistent with common Indian payroll practice; actual company policy may use a different per-day divisor.

Update schedule: Reviewed quarterly, and on any notification updating Code on Wages enforcement status by state. Reflects published law and guidance as of 28 June 2026.

Disclaimer: General information only — not legal advice. Employment law outcomes depend on specific facts, your employment contract, and the state your establishment is registered in. Consult a licensed employment lawyer for advice on your specific situation.

Last updated: 28 June 2026 · Reviewed by: Adv. Rohit Mehra, Employment Lawyer