Glossary
Notice pay
Payment in lieu of the contractual or statutory notice period when either employer or employee ends employment without serving full notice — a contractual, not deemed-wages, calculation.
Notice pay compensates for the unserved portion of a notice period, typically calculated on the employee’s last-drawn fixed pay per the employment contract. It does not use the statutory wages definition applied for gratuity or PF.
It is usually processed through the full and final settlement alongside other exit dues, and its taxability follows ordinary salary-income rules rather than any special exemption.
Why it matters now: don’t conflate notice pay with retrenchment compensation. They follow different legal bases and different tax treatment, and mixing them up is a common F&F error.