Guide · the rules in plain words
Tax on your final settlement
Compensation, notice pay, leave encashment, unpaid salary and gratuity paid directly by the employer are taxed as salary income. Gratuity from an NBR-approved gratuity fund is tax free up to 2.5 crore taka, and a recognised provident fund payout is tax free after five years' continuous service or when the exit was beyond your control.
Based on the Finance Act 2026, checked 13 November 2026 · An estimate, not legal or tax advice.
Which exit payments are taxed?
| Payment | Treatment |
|---|---|
| Unpaid salary, notice pay, leave encashment | Taxed as salary |
| Labour Act compensation or service benefit | Taxed as salary |
| Gratuity paid from company cash | Taxed as salary |
| Gratuity from an NBR-approved fund | Tax free up to 2.5 crore |
| Recognised provident fund, 5+ years or exit beyond your control | Tax free |
| Pension, universal pension scheme | Tax free |
These rules come from practitioner guides (PwC and tax firms), not the gazette, so Pawna marks them as secondary.
How does Pawna work out the tax?
It adds the taxable exit payments to the salary you already earned this income year, works out the year’s tax with and without them, and shows the difference as the tax caused by leaving. The worked example below uses six months’ salary of 7,20,000 taka with a direct benefit of 2,40,000 and leave pay of 80,000.
The worked example in full
The worker earned 7,20,000 taka of salary from July to the exit, and leaves with a direct benefit of 2,40,000 and leave pay of 80,000.
- Paid directly by the employer, all 10,40,000 is salary. The tax for the year is 29,333 taka.
- If the 2,40,000 instead comes as gratuity from an NBR-approved fund, it drops out of taxable income, and the year’s tax falls to 13,333 taka.
Same money, about 16,000 taka more in the worker’s pocket, just from how it is paid.
What is still unclear?
How a provident fund payout is taxed when you were in the fund under five years, or the fund is not recognised, is not settled. Pawna leaves it out of the tax sum and shows it separately. Workers’ profit participation fund payments have 10% deducted at source, and whether that is final is also open.
What should I ask HR?
Whether the gratuity is paid from an NBR-approved fund, and whether the provident fund is recognised. The answers can change your take-home by tens of thousands.
Common mistakes
- Assuming all gratuity is tax free. Only gratuity from an approved fund is.
- Forgetting the salary you already earned this year. Exit payments are added to it before the slabs apply.
- Not getting proof of tax deducted. You need it to claim the tax in your return.
What to collect before you file
- The final settlement statement, showing each payment separately.
- A letter saying whether gratuity came from an approved fund.
- Your provident fund statement and whether the fund is recognised.
- A certificate of the tax deducted from the settlement.
Common questions
Will my employer deduct tax from my final settlement?
Usually, yes, for the taxable parts. Ask for the tax deduction in writing; you claim it in your return.
Is leave encashment taxable?
Yes. It is taxed as salary, and there is no exemption clause for it.
Is my provident fund payout taxed?
A recognised fund paid after five years of continuous service, or on an exit beyond your control, is tax free. Other cases are not settled, so Pawna shows them separately and leaves them out of the tax sum.
Try it with your own figures
The calculator runs on your phone. Your figures are not sent anywhere.