Retrenchment Compensation
Compensation under Section 25F of the Industrial Disputes Act.
The Retrenchment Compensation calculator computes compensation payable under the Industrial Relations Code, 2020, which subsumes the Industrial Disputes Act, 1947. The statutory rate is 15 days' average pay for each completed year of continuous service. It is for employers planning a retrenchment and for workers who want to check the compensation due to them.
Use the Retrenchment Compensation
Retrenchment Compensation
Years considered0
Per-day wages (Basic + DA / 26)₹ 0
Compensation @ 15 days/year₹ 0
Notice pay (if applicable)₹ 0
Worker Re-skilling Fund (15 days, Sec 83)₹ 0
Other dues (gratuity, leave encashment)As applicable
Total employer cost₹ 0
Retrenchment compensation under Sec 70 of IR Code 2020. Workman with less than 240 days of continuous service in preceding 12 months is not entitled (but may have notice pay rights).
Compute retrenchment compensation payable under the Industrial Relations Code, 2020 (effective 21 November 2025), which subsumes the Industrial Disputes Act, 1947. Statutory rate: 15 days' average pay for each completed year of continuous service.
Retrenchment - statutory framework:
- Section 70, IR Code 2020: Workman who has rendered continuous service for not less than 1 year cannot be retrenched without (i) one month notice in writing, (ii) compensation @ 15 days' average pay for every completed year of continuous service or any part of a year in excess of six months, (iii) intimation to the appropriate Government.
- Worker Re-skilling Fund (Section 83): In addition, the employer credits 15 days' wages last drawn by each retrenched worker to the fund, within 10 days of retrenchment; the amount is then transferred to the worker.
- Continuous service: 240 working days in 12 months (190 days for mines below ground).
- Threshold for prior permission: Industrial establishments (factories, mines, plantations) with 300+ workers - prior permission of the appropriate Government is needed for lay-off (Sec 78), retrenchment (Sec 79, with three months' notice or wages in lieu) and closure (Sec 80).
- Lay-off compensation: 50% of basic wages + DA for the lay-off period (Sec 67).
- Last-in-first-out: Rule of seniority - the most recently appointed workman of the same category must be retrenched first (Sec 71).
- Re-employment preference: Retrenched workmen have first preference for re-employment for 1 year (Sec 72).
- Tax treatment: Retrenchment compensation up to Rs 5,00,000 is exempt under Section 10(10B) of the Income Tax Act, 1961 for non-government employees; from Tax Year 2026-27 the corresponding provision is Section 19 of the Income Tax Act, 2025 (a deduction from salary).
What is NOT retrenchment:
- Voluntary retirement / resignation
- Termination on disciplinary grounds after due inquiry
- Non-renewal of fixed-term contract on expiry (per IR Code)
- Retirement at age of superannuation
- Continued ill-health
Important note: This tool provides an indicative output only. It does not factor in every special provision, surcharge, exception, or recent notification. Verify with the firm before acting on any computation.
Frequently Asked Questions
How is retrenchment compensation calculated?
Retrenchment compensation is 15 days' average pay for every completed year of continuous service, under Section 70 of the Industrial Relations Code, 2020. A part of a year above six months counts as a full year. This tool takes monthly basic plus DA divided by 26 as daily pay, multiplies it by 15 and by the years counted, and adds pay in lieu of notice if notice was not given (one month, or three months in establishments with 300 or more workers). The employer also pays 15 days' wages into the Worker Re-skilling Fund under Section 83. Gratuity and leave encashment are payable separately.
When is government permission required for retrenchment?
Under the Industrial Relations Code, 2020, effective 21 November 2025, prior permission of the appropriate government is required before retrenchment, lay-off or closure in industrial establishments (factories, mines and plantations) with 300 or more workers, up from 100 under the Industrial Disputes Act, and the notice period for retrenchment is three months. Below that, one month's written notice or pay in lieu, compensation and intimation to the government are required.
Is retrenchment compensation taxable?
Retrenchment compensation received by non-government employees is exempt from income tax under Section 10(10B) (Section 19 of the Income Tax Act, 2025 from Tax Year 2026-27), subject to the statutory formula and a limit of Rs 5 lakh; any excess is taxable as salary. Non-renewal of a fixed-term contract on expiry is not retrenchment under the Industrial Relations Code, so no retrenchment compensation is payable in that case.
Due in the next 30 days
Labour- ESI Half-yearly Return of Contributions (Apr–Sep 2026)
- PF deposit (ECR + challan) for October
- ESI contribution for October
Full compliance calendar → Statutory dates, which can be extended by notification. General information only.