Severance Agreement (India)
Industrial Disputes Act 1947
SEVERANCE AND FULL AND FINAL SETTLEMENT AGREEMENT
Industrial Disputes Act 1947 | Indian Contract Act 1872
This Severance Agreement ("Agreement") is entered into on [Payment Date] between:
(1) [Employer Name] (CIN: [Employer CIN]), a company incorporated under the Companies Act 2013, having its registered office at [Employer Address] ("Employer"); and
(2) [Employee Name] (PAN: [Employee PAN]) residing at [Employee Address] ("Employee").
The Employer and Employee are collectively referred to as the "Parties."
RECITALS
A. The Employee was employed by the Employer as [Designation] since [Joining Date].
B. The Parties have agreed to terminate the employment relationship with effect from [Termination Date] on account of [Reason for Separation].
C. The Parties desire to document the terms of separation and full and final settlement of all claims arising from or in connection with the employment.
1. FINANCIAL SETTLEMENT
1.1 In full and final settlement of all amounts due and all claims arising from the employment and its termination, the Employer agrees to pay the Employee the following amounts:
(a) Retrenchment Compensation (under Section 25F, Industrial Disputes Act 1947): [Retrenchment Compensation]
(b) Gratuity (under Payment of Gratuity Act 1972): [Gratuity Amount]
(c) Notice Pay / Pay in Lieu of Notice: [Notice Pay]
(d) Ex-gratia Payment: [Ex-Gratia Payment]
(e) Total Full and Final Settlement Amount: [Total Settlement]
1.2 The total settlement amount shall be paid on or before [Payment Date] by bank transfer to the Employee's designated account.
1.3 Tax Deduction at Source (TDS) shall be deducted from the applicable components of the settlement amount as required under the Income Tax Act 1961.
2. MUTUAL RELEASE OF CLAIMS
2.1 In consideration of the settlement amount, the Employee unconditionally releases and discharges the Employer, its directors, officers, employees, and affiliates from all claims, demands, and causes of action arising from or in connection with the employment or its termination, whether arising under the Industrial Disputes Act 1947, the Payment of Gratuity Act 1972, the Minimum Wages Act 1948, any other statute, or general law.
2.2 The Employer releases the Employee from all claims and causes of action known to the Employer as at the date of this Agreement.
2.3 This release shall not affect any rights or claims arising after the date of this Agreement.
3. RETURN OF PROPERTY AND CONFIDENTIALITY
3.1 The Employee shall return all company property including laptops, mobile phones, access cards, documents, and other assets by [Property Return Date].
3.2 The Employee undertakes to maintain the confidentiality of all proprietary and confidential information of the Employer for [Confidentiality Period] from the date of termination.
3.3 Neither party shall make any disparaging statements about the other.
4. GENERAL
4.1 This Agreement constitutes the entire understanding between the Parties with respect to the subject matter hereof.
4.2 This Agreement is governed by the laws of India. Any disputes shall be subject to the exclusive jurisdiction of the [Jurisdiction].
4.3 The Employee confirms that they have had the opportunity to obtain independent legal advice before signing this Agreement and that they sign this freely and voluntarily.
Employer (Authorised Signatory)
________________
Signature
Employee
________________
Signature
What Is a Severance Agreement (India)?
A Severance Agreement in India records the bargain between the parties, fixing their respective rights, duties and remedies.
The legal framework governing the Severance Agreement (India) in India draws on several key statutes and regulatory bodies. Under Indian law, the Indian Contract Act 1872 governs contractual obligations, with Section 10 setting essential requirements for valid agreements. The Companies Act 2013 regulates corporate entities through the Registrar of Companies (ROC) and Ministry of Corporate Affairs (MCA). The Industrial Disputes Act 1947 and state labour commissioners govern employment disputes. The Information Technology Act 2000 and IT (Reasonable Security Practices) Rules 2011 protect personal data. The Income Tax Act 1961 and Goods and Services Tax Act 2017 govern tax obligations through the Central Board of Direct Taxes (CBDT) and GST Council. Parties executing a Severance Agreement (India) in India should confirm the document reflects current law, including any amendments enacted since the original drafting date. The Industrial Disputes Act, 1947 sets the foundational requirements.
When Do You Need a Severance Agreement (India)?
You need a Severance Agreement when ending an employment relationship in India under circumstances where a clean break with mutual release of claims is desired. Situations include: retrenchment under Section 25F of the Industrial Disputes Act 1947 where the employer wishes to obtain a discharge of all claims in exchange for compensation exceeding the statutory minimum; voluntary retirement schemes offered to employees to reduce workforce without triggering the retrenchment procedure under Section 25N; termination by mutual consent where both parties agree that the employment relationship is not working, avoiding the need for performance improvement plans or disciplinary proceedings; settlement of disputes that arose during employment including complaints of workplace harassment, discrimination, or unfair treatment; resolution of wage and benefit disputes before the Labour Court or Industrial Tribunal; early termination of fixed-term contracts by mutual agreement; and separation of senior management employees whose terms are typically governed by individual employment contracts with specific termination provisions. The agreement is particularly important when the employee has received company loans, is in possession of confidential information, has been granted stock options or deferred compensation, or has been involved in sensitive business matters where a clean and documented separation is essential for both parties.
Parties in India should prepare a Severance Agreement (India) proactively rather than waiting for a dispute to arise. Courts interpret agreements based on the written terms rather than oral representations. Under Indian law, the Indian Contract Act 1872 governs contractual obligations, with Section 10 setting essential requirements for valid agreements. The Companies Act 2013 regulates corporate entities through the Registrar of Companies (ROC) and Ministry of Corporate Affairs (MCA). The Industrial Disputes Act 1947 and state labour commissioners govern employment disputes. The Information Technology Act 2000 and IT (Reasonable Security Practices) Rules 2011 protect personal data. The Income Tax Act 1961 and Goods and Services Tax Act 2017 govern tax obligations through the Central Board of Direct Taxes (CBDT) and GST Council. Where the transaction involves regulated activities, prior approval from the relevant authority may be required before execution.
What to Include in Your Severance Agreement (India)
A Severance Agreement for India should include: identification of employer (with CIN or LLPIN) and employee (with PAN, Aadhaar, and designation); effective date of termination; reason for separation (retrenchment, mutual consent, VRS, etc.); breakdown of all financial entitlements including retrenchment compensation calculated per Section 25F of the Industrial Disputes Act 1947 (15 days' wages × completed years of service), gratuity under the Payment of Gratuity Act 1972, earned leave encashment, notice pay or pay in lieu of notice, performance bonus, and any ex-gratia payment; ESOP/deferred compensation treatment; full and final settlement amount in Indian Rupees; payment schedule and mode of payment; return of company property including laptop, mobile phone, access cards, and documents; non-disclosure and confidentiality obligations; non-disparagement clause; cooperation in transition; tax withholding clause noting employer's TDS obligations under Section 192 of the Income Tax Act 1961; mutual release and discharge of claims; no-admission clause; reference and background check agreement; governing law (Indian law) and jurisdiction (specific city); dispute resolution mechanism (internal escalation, mediation, or arbitration under Arbitration and Conciliation Act 1996); and signatures of both parties with date and place, witnessed by two witnesses.
Additional compliance elements for a Severance Agreement (India) used in India include: Under Indian law, the Indian Contract Act 1872 governs contractual obligations, with Section 10 setting essential requirements for valid agreements. The Companies Act 2013 regulates corporate entities through the Registrar of Companies (ROC) and Ministry of Corporate Affairs (MCA). The Industrial Disputes Act 1947 and state labour commissioners govern employment disputes. The Information Technology Act 2000 and IT (Reasonable Security Practices) Rules 2011 protect personal data. The Income Tax Act 1961 and Goods and Services Tax Act 2017 govern tax obligations through the Central Board of Direct Taxes (CBDT) and GST Council. Forms-legal.com provides this template as a starting point for India-compliant documentation.
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Reference this free template in an article, syllabus, or research note:
Forms Legal. (2026). Severance Agreement (India) (India) [Legal document template]. Forms Legal. https://forms-legal.com/india/employment/termination/severance-agreement-india
"Severance Agreement (India) (India)." Forms Legal, 2026, https://forms-legal.com/india/employment/termination/severance-agreement-india.
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title = {Severance Agreement (India) (India)},
year = {2026},
howpublished = {\url{https://forms-legal.com/india/employment/termination/severance-agreement-india}},
note = {Free legal document template. Based on Industrial Disputes Act, 1947}
}Also available for these jurisdictions:
Frequently Asked Questions
Under Section 25F of the Industrial Disputes Act 1947, a workman who has been in continuous service for not less than one year is entitled to mandatory retrenchment compensation before being retrenched. The minimum retrenchment compensation payable is fifteen days' average pay for every completed year of continuous service, or any part thereof in excess of six months. Average pay is calculated as one month's wages divided by 26 working days for daily-rated workmen, and one month's salary for monthly-rated employees. In addition to retrenchment compensation, the employer must give the workman one month's notice or pay wages in lieu of such notice. The employer must also obtain prior permission of the appropriate government authority for establishments employing 100 or more workmen under Section 25N of the Industrial Disputes Act 1947. For establishments with less than 100 workmen, prior permission is not required but the procedure under Section 25F must be followed. Additionally, under the Payment of Gratuity Act 1972, employees who have completed five or more years of continuous service are entitled to gratuity at the rate of fifteen days' wages for each completed year of service. The Income Tax Act 1961 provides that retrenchment compensation received under the Industrial Disputes Act 1947 is exempt from income tax under Section 10(10B) up to the amount calculated in accordance with the formula or ₹5 lakh, whichever is less, subject to prescribed conditions.
Yes, an employer and employee can agree on a severance package that exceeds the statutory minimum under the Industrial Disputes Act 1947. Indian employment law establishes a floor of rights but does not prevent employers from offering more generous terms. Many companies offer enhanced severance packages through voluntary retirement schemes (VRS) under Section 2(oo)(bb) of the Industrial Disputes Act 1947, which exclude voluntary retirement from the definition of retrenchment, allowing employees to receive more than the statutory minimum without triggering the formal retrenchment procedure. Enhanced severance packages may include: additional ex-gratia payment beyond the statutory 15 days' wages per year; continuation of health insurance benefits for a period post-termination; outplacement support and career counselling services; accelerated vesting of stock options or deferred compensation; extended notice period or garden leave; payment of earned leave and LTA arrears; and continuation of certain perquisites. When such enhanced packages are offered, they are typically documented in a Separation Agreement or Full and Final Settlement letter that requires the employee to sign a release of claims against the employer. The Supreme Court of India has upheld such mutual settlement agreements in numerous cases including Lakshmi Devi Sugar Mills Ltd. v. Ram Sarup (AIR 1957) and subsequent decisions, provided they are freely entered into without coercion and the statutory minimums are not compromised.
Post-employment obligations in a Severance Agreement under Indian law are governed by the Indian Contract Act 1872, and certain restrictions must meet the reasonableness standard to be enforceable. Non-Disclosure Agreements (NDAs) or confidentiality obligations post-employment are generally enforceable in India as they protect legitimate business interests and do not constitute agreements in restraint of trade under Section 27 of the Indian Contract Act 1872. Courts have upheld NDAs that restrict disclosure of trade secrets, customer lists, proprietary technology, and confidential business information even after employment ends. However, post-employment non-compete clauses are generally unenforceable in India. Section 27 of the Indian Contract Act 1872 declares void any agreement that restrains a person from exercising a lawful profession, trade, or business. The Supreme Court of India in Superintendence Company of India (P) Ltd. v. Krishan Murgai (AIR 1980 SC 1717) held that post-employment restraints of trade are prima facie void and cannot be enforced. Non-solicitation of customers and employees for a reasonable period post-employment is a grey area — some High Courts have granted injunctions while others have refused. Return of company property, devices, and confidential documents is enforceable. Assignment of intellectual property created during employment is enforceable under the Copyright Act 1957 and Patents Act 1970.
A Severance Agreement (India) does not legally require a lawyer in India, and individuals and businesses may draft and execute the document independently. The Industrial Disputes Act, 1947 does not mandate legal representation for the creation or signing of this type of document. However, seeking independent legal advice from a qualified India lawyer is recommended for transactions involving substantial financial value, complex regulatory requirements, or cross-border elements where multiple legal jurisdictions may apply. A lawyer can verify that the document complies with all applicable statutory requirements, identify potential risks specific to the transaction, and confirm that the terms adequately protect the interests of all parties involved. The Supreme Court of India has jurisdiction over disputes arising from this type of document, and Registrar of Companies (ROC) may impose additional compliance obligations depending on the nature of the underlying transaction. Professional legal review is particularly advisable where the document will be submitted to government agencies or used as evidence in legal proceedings.
A Severance Agreement (India) does not legally require a lawyer in India, though legal advice is recommended. Under Indian law, the Indian Contract Act 1872 governs agreements. The Companies Act 2013 and Registrar of Companies (ROC) regulate corporate documents. The Information Technology Act 2000 governs electronic contracts and data protection. The Consumer Protection Act 2019 provides consumer rights. The Income Tax Act 1961 requires tax compliance. Forms-legal.com provides this template as a starting point — always review with a qualified Indian advocate for significant transactions. Under India law, Industrial Disputes Act, 1947, parties should seek independent legal advice from a qualified lawyer to confirm compliance with all applicable requirements. Under Indian law, the Indian Contract Act 1872 governs contractual obligations, with Section 10 setting essential requirements for valid agreements. The Companies Act 2013 regulates corporate entities through the Registrar of Companies (ROC) and Ministry of Corporate Affairs (MCA). Forms-legal.com provides this template as a starting point for India-compliant documentation.
This template is provided for informational purposes only and does not constitute legal advice. Laws vary by jurisdiction and change over time. Consult a qualified attorney for advice specific to your situation.Full disclaimer
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