Full and Final Settlement: Auditing the Statement Line by Line

The statement you received

Your last working day is 20 January 2027. Monthly gross is ₹2,50,000, of which basic is ₹1,00,000. You served 60 of a required 90 days' notice. All figures are hypothetical.

Rebuilding each line

Salary to the last day. ₹2,50,000 × 20 ÷ 31 = ₹1,61,290. Payroll used calendar days. If your policy uses a 30-day month, the figure would be ₹1,66,667, which is ₹5,377 more. Check which basis your policy states. First-month proration compares the methods; the same choice applies to your final month.

Leave encashment. 20 days at ₹2,50,000 ÷ 30 = ₹8,333.33 a day, or ₹1,66,667. Two things to check: the balance matches your leave record on the last day, and the day rate uses the salary your policy names. If it named basic, the figure would be 20 × ₹3,333.33 = ₹66,667. On leaving, a non-Government employee's encashment is exempt up to the lowest of four limits in section 19(1), Table Sl. 14 of the Income-tax Act, 2025_Bill.pdf). One of those limits is a notified amount we have not verified. Leave encashment tax works the four limits through. The tax check below assumes the whole ₹1,66,667 is within them.

Employee PF. 12% of EPF wages, which are basic plus DA plus retaining allowance, up to the ₹25,000 ceiling. January's EPF wages of ₹64,516 are above the ceiling, so ₹3,000, unless you had agreed to contribute on higher wages. The ceiling and definition are in EPFO's wage ceiling FAQ.

Notice shortfall. 30 unserved days at basic ₹1,00,000 ÷ 30 = ₹1,00,000. Your contract decides whether the recovery is on basic or gross; on gross it would be ₹2,50,000. The statement is consistent with a basic-pay clause. Confirm that is what your contract says. Notice period buyout covers the variants.

The TDS true-up

Payroll projected ₹30,00,000 of salary for the tax year and deducted one twelfth of the tax on it each month. On that projection, taxable income was ₹29,25,000 and annual tax ₹4,75,800 with cess. Nine months at ₹39,650 is ₹3,56,850 deducted by December.

Your actual salary for the tax year is nine months at ₹2,50,000 plus January's ₹1,61,290, or ₹24,11,290. Less the ₹75,000 standard deduction, taxable income is ₹23,36,290. Tax on that, with cess, is ₹2,95,435. Payroll has already deducted ₹61,415 more than that, so settlement TDS is correctly nil. Section 392(5)(c) allows an employer to adjust for excess deduction within the year. Whether yours refunds it in the settlement or leaves it for your return is a payroll decision, so ask.

# Hypothetical settlement. Tax year 2026-27, new regime.
def tax(ti):
    t, lo = 0.0, 0
    for hi, r in ((400000, 0), (800000, .05), (1200000, .10), (1600000, .15),
                  (2000000, .20), (2400000, .25), (float("inf"), .30)):
        t += max(0, min(ti, hi) - lo) * r
        lo = hi
    return 0.0 if ti <= 1200000 else round(min(t, ti - 1200000) * 1.04, 2)

gross, basic, last_day, days_in_month = 250000, 100000, 20, 31
earnings = {
    "salary": round(gross * last_day / days_in_month),
    "leave_encashment": round(gross / 30 * 20),
}
deductions = {
    "employee_pf": round(0.12 * min(basic * last_day / days_in_month, 25000)),
    "notice_recovery": round(basic / 30 * 30),
}
net = sum(earnings.values()) - sum(deductions.values())

deducted = tax(12 * gross - 75000) / 12 * 9            # Apr-Dec on projection
actual = tax(9 * gross + earnings["salary"] - 75000)    # leave assumed exempt
print(earnings, deductions, "net:", net)
print("tax due:", actual, "already deducted:", deducted,
      "excess:", round(deducted - actual))

If you join a new employer before 31 March 2027, declare this salary and TDS to them under section 392(4). Their salary will use up some of the excess, and the combined figure is what counts.

Lines that are sometimes missing

• Gratuity. If your service and the applicable rules entitle you to it, it may be paid with the settlement or separately. Its exemption is a separate calculation.
• Variable pay earned before exit. Check the plan: some pay a prorated amount, some pay nothing if you are not employed on the payout date.
• Reimbursements. Expense claims submitted before your last day.
• Asset recoveries. A laptop not returned, or a loan balance. These should be itemised, not netted silently.

Ask for anything you expected but cannot see, in writing, before you sign the acknowledgement.

Reconstructing a statement from its source terms, and explaining each difference, is the same discipline as reconciling a client's invoice. Our FDE for Professionals programme is a proposed advanced track, live online with optional in-person labs at our Noida centre. Eligible learners meeting the attendance and capstone criteria get assured job interviews through our hiring network.