diff --git a/mypy/checker.py b/mypy/checker.py
index 6390b381d918..c6d82e580b7f 100644
--- a/mypy/checker.py
+++ b/mypy/checker.py
@@ -53,7 +53,7 @@
 from mypy.typevars import fill_typevars, has_no_typevars, fill_typevars_with_any
 from mypy.semanal import set_callable_name, refers_to_fullname
 from mypy.mro import calculate_mro
-from mypy.erasetype import erase_typevars
+from mypy.erasetype import erase_typevars, remove_instance_last_known_values
 from mypy.expandtype import expand_type, expand_type_by_instance
 from mypy.visitor import NodeVisitor
 from mypy.join import join_types
@@ -1868,10 +1868,9 @@ def check_assignment(self, lvalue: Lvalue, rvalue: Expression, infer_lvalue_type
                 self.check_indexed_assignment(index_lvalue, rvalue, lvalue)
 
             if inferred:
-                rvalue_type = self.expr_checker.accept(
-                    rvalue,
-                    in_final_declaration=inferred.is_final,
-                )
+                rvalue_type = self.expr_checker.accept(rvalue)
+                if not inferred.is_final:
+                    rvalue_type = remove_instance_last_known_values(rvalue_type)
                 self.infer_variable_type(inferred, lvalue, rvalue_type, rvalue)
 
     def check_compatibility_all_supers(self, lvalue: RefExpr, lvalue_type: Optional[Type],
diff --git a/mypy/checkexpr.py b/mypy/checkexpr.py
index b079b82a6a68..856a96d271d6 100644
--- a/mypy/checkexpr.py
+++ b/mypy/checkexpr.py
@@ -141,15 +141,6 @@ def __init__(self,
         self.plugin = plugin
         self.type_context = [None]
 
-        # Set to 'True' whenever we are checking the expression in some 'Final' declaration.
-        # For example, if we're checking the "3" in a statement like "var: Final = 3".
-        #
-        # This flag changes the type that eventually gets inferred for "var". Instead of
-        # inferring *just* a 'builtins.int' instance, we infer an instance that keeps track
-        # of the underlying literal value. See the comments in Instance's constructors for
-        # more details.
-        self.in_final_declaration = False
-
         # Temporary overrides for expression types. This is currently
         # used by the union math in overloads.
         # TODO: refactor this to use a pattern similar to one in
@@ -224,8 +215,8 @@ def analyze_ref_expr(self, e: RefExpr, lvalue: bool = False) -> Type:
     def analyze_var_ref(self, var: Var, context: Context) -> Type:
         if var.type:
             if isinstance(var.type, Instance):
-                if self.is_literal_context() and var.type.final_value is not None:
-                    return var.type.final_value
+                if self.is_literal_context() and var.type.last_known_value is not None:
+                    return var.type.last_known_value
                 if var.name() in {'True', 'False'}:
                     return self.infer_literal_expr_type(var.name() == 'True', 'builtins.bool')
             return var.type
@@ -1812,15 +1803,13 @@ def infer_literal_expr_type(self, value: LiteralValue, fallback_name: str) -> Ty
         typ = self.named_type(fallback_name)
         if self.is_literal_context():
             return LiteralType(value=value, fallback=typ)
-        elif self.in_final_declaration:
+        else:
             return typ.copy_modified(final_value=LiteralType(
                 value=value,
                 fallback=typ,
                 line=typ.line,
                 column=typ.column,
             ))
-        else:
-            return typ
 
     def visit_int_expr(self, e: IntExpr) -> Type:
         """Type check an integer literal (trivial)."""
@@ -2450,7 +2439,11 @@ def visit_index_expr(self, e: IndexExpr) -> Type:
         It may also represent type application.
         """
         result = self.visit_index_expr_helper(e)
-        return self.narrow_type_from_binder(e, result)
+        result = self.narrow_type_from_binder(e, result)
+        if (self.is_literal_context() and isinstance(result, Instance)
+                and result.last_known_value is not None):
+            result = result.last_known_value
+        return result
 
     def visit_index_expr_helper(self, e: IndexExpr) -> Type:
         if e.analyzed:
@@ -2542,8 +2535,8 @@ def _get_value(self, index: Expression) -> Optional[int]:
                 if isinstance(operand, IntExpr):
                     return -1 * operand.value
         typ = self.accept(index)
-        if isinstance(typ, Instance) and typ.final_value is not None:
-            typ = typ.final_value
+        if isinstance(typ, Instance) and typ.last_known_value is not None:
+            typ = typ.last_known_value
         if isinstance(typ, LiteralType) and isinstance(typ.value, int):
             return typ.value
         return None
@@ -2553,8 +2546,8 @@ def visit_typeddict_index_expr(self, td_type: TypedDictType, index: Expression)
             item_name = index.value
         else:
             typ = self.accept(index)
-            if isinstance(typ, Instance) and typ.final_value is not None:
-                typ = typ.final_value
+            if isinstance(typ, Instance) and typ.last_known_value is not None:
+                typ = typ.last_known_value
 
             if isinstance(typ, LiteralType) and isinstance(typ.value, str):
                 item_name = typ.value
@@ -3253,7 +3246,6 @@ def accept(self,
                type_context: Optional[Type] = None,
                allow_none_return: bool = False,
                always_allow_any: bool = False,
-               in_final_declaration: bool = False,
                ) -> Type:
         """Type check a node in the given type context.  If allow_none_return
         is True and this expression is a call, allow it to return None.  This
@@ -3261,8 +3253,6 @@ def accept(self,
         """
         if node in self.type_overrides:
             return self.type_overrides[node]
-        old_in_final_declaration = self.in_final_declaration
-        self.in_final_declaration = in_final_declaration
         self.type_context.append(type_context)
         try:
             if allow_none_return and isinstance(node, CallExpr):
@@ -3274,8 +3264,8 @@ def accept(self,
         except Exception as err:
             report_internal_error(err, self.chk.errors.file,
                                   node.line, self.chk.errors, self.chk.options)
+
         self.type_context.pop()
-        self.in_final_declaration = old_in_final_declaration
         assert typ is not None
         self.chk.store_type(node, typ)
 
diff --git a/mypy/checkmember.py b/mypy/checkmember.py
index 9c9e8e24518c..e17d5f044d84 100644
--- a/mypy/checkmember.py
+++ b/mypy/checkmember.py
@@ -101,8 +101,8 @@ def analyze_member_access(name: str,
                        msg,
                        chk=chk)
     result = _analyze_member_access(name, typ, mx, override_info)
-    if in_literal_context and isinstance(result, Instance) and result.final_value is not None:
-        return result.final_value
+    if in_literal_context and isinstance(result, Instance) and result.last_known_value is not None:
+        return result.last_known_value
     else:
         return result
 
diff --git a/mypy/erasetype.py b/mypy/erasetype.py
index 7949cf46c6da..a179d1c5aef1 100644
--- a/mypy/erasetype.py
+++ b/mypy/erasetype.py
@@ -119,3 +119,17 @@ def visit_type_var(self, t: TypeVarType) -> Type:
         if self.erase_id(t.id):
             return self.replacement
         return t
+
+
+def remove_instance_last_known_values(t: Type) -> Type:
+    return t.accept(LastKnownValueEraser())
+
+
+class LastKnownValueEraser(TypeTranslator):
+    """Removes the Literal[...] type that may be associated with any
+    Instance types."""
+
+    def visit_instance(self, t: Instance) -> Type:
+        if t.last_known_value:
+            return t.copy_modified(final_value=None)
+        return t
diff --git a/mypy/fixup.py b/mypy/fixup.py
index 7cc827f386fc..8d62567d24ed 100644
--- a/mypy/fixup.py
+++ b/mypy/fixup.py
@@ -155,8 +155,8 @@ def visit_instance(self, inst: Instance) -> None:
                 base.accept(self)
         for a in inst.args:
             a.accept(self)
-        if inst.final_value is not None:
-            inst.final_value.accept(self)
+        if inst.last_known_value is not None:
+            inst.last_known_value.accept(self)
 
     def visit_any(self, o: Any) -> None:
         pass  # Nothing to descend into.
diff --git a/mypy/newsemanal/typeanal.py b/mypy/newsemanal/typeanal.py
index e8c3b8c7ce2c..56b4259a9fa7 100644
--- a/mypy/newsemanal/typeanal.py
+++ b/mypy/newsemanal/typeanal.py
@@ -700,9 +700,9 @@ def analyze_literal_param(self, idx: int, arg: Type, ctx: Context) -> Optional[L
         elif isinstance(arg, (NoneType, LiteralType)):
             # Types that we can just add directly to the literal/potential union of literals.
             return [arg]
-        elif isinstance(arg, Instance) and arg.final_value is not None:
+        elif isinstance(arg, Instance) and arg.last_known_value is not None:
             # Types generated from declarations like "var: Final = 4".
-            return [arg.final_value]
+            return [arg.last_known_value]
         elif isinstance(arg, UnionType):
             out = []
             for union_arg in arg.items:
diff --git a/mypy/plugins/common.py b/mypy/plugins/common.py
index f16fc534a32d..879fcf8dba69 100644
--- a/mypy/plugins/common.py
+++ b/mypy/plugins/common.py
@@ -125,8 +125,8 @@ def try_getting_str_literal(expr: Expression, typ: Type) -> Optional[str]:
     """If this expression is a string literal, or if the corresponding type
     is something like 'Literal["some string here"]', returns the underlying
     string value. Otherwise, returns None."""
-    if isinstance(typ, Instance) and typ.final_value is not None:
-        typ = typ.final_value
+    if isinstance(typ, Instance) and typ.last_known_value is not None:
+        typ = typ.last_known_value
 
     if isinstance(typ, LiteralType) and typ.fallback.type.fullname() == 'builtins.str':
         val = typ.value
diff --git a/mypy/sametypes.py b/mypy/sametypes.py
index d39ae878b603..0777865421e0 100644
--- a/mypy/sametypes.py
+++ b/mypy/sametypes.py
@@ -79,7 +79,7 @@ def visit_instance(self, left: Instance) -> bool:
         return (isinstance(self.right, Instance) and
                 left.type == self.right.type and
                 is_same_types(left.args, self.right.args) and
-                left.final_value == self.right.final_value)
+                left.last_known_value == self.right.last_known_value)
 
     def visit_type_var(self, left: TypeVarType) -> bool:
         return (isinstance(self.right, TypeVarType) and
diff --git a/mypy/server/astdiff.py b/mypy/server/astdiff.py
index 962400e451fd..d07c7aca5e40 100644
--- a/mypy/server/astdiff.py
+++ b/mypy/server/astdiff.py
@@ -284,7 +284,7 @@ def visit_instance(self, typ: Instance) -> SnapshotItem:
         return ('Instance',
                 typ.type.fullname(),
                 snapshot_types(typ.args),
-                None if typ.final_value is None else snapshot_type(typ.final_value))
+                None if typ.last_known_value is None else snapshot_type(typ.last_known_value))
 
     def visit_type_var(self, typ: TypeVarType) -> SnapshotItem:
         return ('TypeVar',
diff --git a/mypy/server/astmerge.py b/mypy/server/astmerge.py
index 9ecbbefa9b48..41b483a56502 100644
--- a/mypy/server/astmerge.py
+++ b/mypy/server/astmerge.py
@@ -342,8 +342,8 @@ def visit_instance(self, typ: Instance) -> None:
         typ.type = self.fixup(typ.type)
         for arg in typ.args:
             arg.accept(self)
-        if typ.final_value:
-            typ.final_value.accept(self)
+        if typ.last_known_value:
+            typ.last_known_value.accept(self)
 
     def visit_any(self, typ: AnyType) -> None:
         pass
diff --git a/mypy/server/deps.py b/mypy/server/deps.py
index c957ec81a310..2bd20f72a62b 100644
--- a/mypy/server/deps.py
+++ b/mypy/server/deps.py
@@ -882,8 +882,8 @@ def visit_instance(self, typ: Instance) -> List[str]:
         triggers = [trigger]
         for arg in typ.args:
             triggers.extend(self.get_type_triggers(arg))
-        if typ.final_value:
-            triggers.extend(self.get_type_triggers(typ.final_value))
+        if typ.last_known_value:
+            triggers.extend(self.get_type_triggers(typ.last_known_value))
         return triggers
 
     def visit_any(self, typ: AnyType) -> List[str]:
diff --git a/mypy/type_visitor.py b/mypy/type_visitor.py
index ca1b4062a8eb..f45e8b6849a5 100644
--- a/mypy/type_visitor.py
+++ b/mypy/type_visitor.py
@@ -164,8 +164,8 @@ def visit_deleted_type(self, t: DeletedType) -> Type:
 
     def visit_instance(self, t: Instance) -> Type:
         final_value = None  # type: Optional[LiteralType]
-        if t.final_value is not None:
-            raw_final_value = t.final_value.accept(self)
+        if t.last_known_value is not None:
+            raw_final_value = t.last_known_value.accept(self)
             assert isinstance(raw_final_value, LiteralType)
             final_value = raw_final_value
         return Instance(
@@ -173,7 +173,7 @@ def visit_instance(self, t: Instance) -> Type:
             args=self.translate_types(t.args),
             line=t.line,
             column=t.column,
-            final_value=final_value,
+            last_known_value=final_value,
         )
 
     def visit_type_var(self, t: TypeVarType) -> Type:
diff --git a/mypy/typeanal.py b/mypy/typeanal.py
index 4dcbf0ad7a00..30dadc84656e 100644
--- a/mypy/typeanal.py
+++ b/mypy/typeanal.py
@@ -730,9 +730,9 @@ def analyze_literal_param(self, idx: int, arg: Type, ctx: Context) -> Optional[L
         elif isinstance(arg, (NoneType, LiteralType)):
             # Types that we can just add directly to the literal/potential union of literals.
             return [arg]
-        elif isinstance(arg, Instance) and arg.final_value is not None:
+        elif isinstance(arg, Instance) and arg.last_known_value is not None:
             # Types generated from declarations like "var: Final = 4".
-            return [arg.final_value]
+            return [arg.last_known_value]
         elif isinstance(arg, UnionType):
             out = []
             for union_arg in arg.items:
diff --git a/mypy/types.py b/mypy/types.py
index c704101d5bb7..1d86a19d1c04 100644
--- a/mypy/types.py
+++ b/mypy/types.py
@@ -579,11 +579,11 @@ class Instance(Type):
     The list of type variables may be empty.
     """
 
-    __slots__ = ('type', 'args', 'erased', 'invalid', 'type_ref', 'final_value')
+    __slots__ = ('type', 'args', 'erased', 'invalid', 'type_ref', 'last_known_value')
 
     def __init__(self, typ: mypy.nodes.TypeInfo, args: List[Type],
                  line: int = -1, column: int = -1, erased: bool = False,
-                 final_value: Optional['LiteralType'] = None) -> None:
+                 last_known_value: Optional['LiteralType'] = None) -> None:
         super().__init__(line, column)
         self.type = typ
         self.args = args
@@ -595,15 +595,31 @@ def __init__(self, typ: mypy.nodes.TypeInfo, args: List[Type],
         # True if recovered after incorrect number of type arguments error
         self.invalid = False
 
-        # This field keeps track of the underlying Literal[...] value if this instance
-        # was created via a Final declaration. For example, if we did `x: Final = 3`, x
-        # would have an instance with a `final_value` of `LiteralType(3, int_fallback)`.
+        # This field keeps track of the underlying Literal[...] value associated with
+        # this instance, if one is known.
         #
-        # Or more broadly, this field lets this Instance "remember" its original declaration.
-        # We want this behavior because we want implicit Final declarations to act pretty
-        # much identically with constants: we should be able to replace any places where we
-        # use some Final variable with the original value and get the same type-checking
-        # behavior. For example, we want this program:
+        # This field is set whenever possible within expressions, but is erased upon
+        # variable assignment (see erasetype.remove_instance_last_known_values) unless
+        # the variable is declared to be final.
+        #
+        # For example, consider the following program:
+        #
+        #     a = 1
+        #     b: Final[int] = 2
+        #     c: Final = 3
+        #     print(a + b + c + 4)
+        #
+        # The 'Instance' objects associated with the expressions '1', '2', '3', and '4' will
+        # have last_known_values of type Literal[1], Literal[2], Literal[3], and Literal[4]
+        # respectively. However, the Instance object assigned to 'a' and 'b' will have their
+        # last_known_value erased: variable 'a' is mutable; variable 'b' was declared to be
+        # specifically an int.
+        #
+        # Or more broadly, this field lets this Instance "remember" its original declaration
+        # when applicable. We want this behavior because we want implicit Final declarations
+        # to act pretty much identically with constants: we should be able to replace any
+        # places where we use some Final variable with the original value and get the same
+        # type-checking behavior. For example, we want this program:
         #
         #    def expects_literal(x: Literal[3]) -> None: pass
         #    var: Final = 3
@@ -617,39 +633,37 @@ def __init__(self, typ: mypy.nodes.TypeInfo, args: List[Type],
         # In order to make this work (especially with literal types), we need var's type
         # (an Instance) to remember the "original" value.
         #
-        # This field is currently set only when we encounter an *implicit* final declaration
-        # like `x: Final = 3` where the RHS is some literal expression. This field remains 'None'
-        # when we do things like `x: Final[int] = 3` or `x: Final = foo + bar`.
+        # Preserving this value within expressions is useful for similar reasons.
         #
         # Currently most of mypy will ignore this field and will continue to treat this type like
         # a regular Instance. We end up using this field only when we are explicitly within a
         # Literal context.
-        self.final_value = final_value
+        self.last_known_value = last_known_value
 
     def accept(self, visitor: 'TypeVisitor[T]') -> T:
         return visitor.visit_instance(self)
 
     def __hash__(self) -> int:
-        return hash((self.type, tuple(self.args), self.final_value))
+        return hash((self.type, tuple(self.args), self.last_known_value))
 
     def __eq__(self, other: object) -> bool:
         if not isinstance(other, Instance):
             return NotImplemented
         return (self.type == other.type
                 and self.args == other.args
-                and self.final_value == other.final_value)
+                and self.last_known_value == other.last_known_value)
 
     def serialize(self) -> Union[JsonDict, str]:
         assert self.type is not None
         type_ref = self.type.fullname()
-        if not self.args and not self.final_value:
+        if not self.args and not self.last_known_value:
             return type_ref
         data = {'.class': 'Instance',
                 }  # type: JsonDict
         data['type_ref'] = type_ref
         data['args'] = [arg.serialize() for arg in self.args]
-        if self.final_value is not None:
-            data['final_value'] = self.final_value.serialize()
+        if self.last_known_value is not None:
+            data['last_known_value'] = self.last_known_value.serialize()
         return data
 
     @classmethod
@@ -666,8 +680,8 @@ def deserialize(cls, data: Union[JsonDict, str]) -> 'Instance':
             args = [deserialize_type(arg) for arg in args_list]
         inst = Instance(NOT_READY, args)
         inst.type_ref = data['type_ref']  # Will be fixed up by fixup.py later.
-        if 'final_value' in data:
-            inst.final_value = LiteralType.deserialize(data['final_value'])
+        if 'last_known_value' in data:
+            inst.last_known_value = LiteralType.deserialize(data['last_known_value'])
         return inst
 
     def copy_modified(self, *,
@@ -679,7 +693,7 @@ def copy_modified(self, *,
             self.line,
             self.column,
             self.erased,
-            final_value if final_value is not _dummy else self.final_value,
+            final_value if final_value is not _dummy else self.last_known_value,
         )
 
     def has_readable_member(self, name: str) -> bool:
diff --git a/test-data/unit/check-literal.test b/test-data/unit/check-literal.test
index 05b9cff1fbf3..f34832f45684 100644
--- a/test-data/unit/check-literal.test
+++ b/test-data/unit/check-literal.test
@@ -2474,6 +2474,7 @@ from typing_extensions import Final, Literal
 a: Final = 1
 implicit = [a]
 explicit: List[Literal[1]] = [a]
+direct = [1]
 
 def force1(x: List[Literal[1]]) -> None: pass
 def force2(x: Literal[1]) -> None: pass
@@ -2487,6 +2488,12 @@ force2(reveal_type(implicit[0])) # E: Argument 1 to "force2" has incompatible ty
 reveal_type(explicit)            # E: Revealed type is 'builtins.list[Literal[1]]'
 force1(reveal_type(explicit))    # E: Revealed type is 'builtins.list[Literal[1]]'
 force2(reveal_type(explicit[0])) # E: Revealed type is 'Literal[1]'
+
+reveal_type(direct)              # E: Revealed type is 'builtins.list[builtins.int*]'
+force1(reveal_type(direct))      # E: Argument 1 to "force1" has incompatible type "List[int]"; expected "List[Literal[1]]" \
+                                 # E: Revealed type is 'builtins.list[builtins.int*]'
+force2(reveal_type(direct[0]))   # E: Argument 1 to "force2" has incompatible type "int"; expected "Literal[1]" \
+                                 # E: Revealed type is 'builtins.int*'
 [builtins fixtures/list.pyi]
 [out]
 
@@ -2806,3 +2813,42 @@ Alias = Test
 x: Literal[Alias.FOO]
 reveal_type(x)  # E: Revealed type is 'Literal[__main__.Test.FOO]'
 [out]
+
+[case testLiteralWithFinalPropagation]
+from typing_extensions import Final, Literal
+
+a: Final = 3
+b: Final = a
+c = a
+
+def expect_3(x: Literal[3]) -> None: pass
+expect_3(a)
+expect_3(b)
+expect_3(c)  # E: Argument 1 to "expect_3" has incompatible type "int"; expected "Literal[3]"
+[out]
+
+[case testLiteralWithFinalPropagationIsNotLeaking]
+from typing_extensions import Final, Literal
+
+final_tuple_direct: Final = (2, 3)
+final_tuple_indirect: Final = final_tuple_direct
+mutable_tuple = final_tuple_direct
+final_list_1: Final = [2]
+final_list_2: Final = [2, 2]
+final_dict: Final = {"foo": 2}
+final_set_1: Final = {2}
+final_set_2: Final = {2, 2}
+
+def expect_2(x: Literal[2]) -> None: pass
+
+expect_2(final_tuple_direct[0])
+expect_2(final_tuple_indirect[0])
+
+expect_2(mutable_tuple[0])   # E: Argument 1 to "expect_2" has incompatible type "int"; expected "Literal[2]"
+expect_2(final_list_1[0])    # E: Argument 1 to "expect_2" has incompatible type "int"; expected "Literal[2]"
+expect_2(final_list_2[0])    # E: Argument 1 to "expect_2" has incompatible type "int"; expected "Literal[2]"
+expect_2(final_dict["foo"])  # E: Argument 1 to "expect_2" has incompatible type "int"; expected "Literal[2]"
+expect_2(final_set_1.pop())  # E: Argument 1 to "expect_2" has incompatible type "int"; expected "Literal[2]"
+expect_2(final_set_2.pop())  # E: Argument 1 to "expect_2" has incompatible type "int"; expected "Literal[2]"
+[builtins fixtures/isinstancelist.pyi]
+[out]
diff --git a/test-data/unit/fine-grained.test b/test-data/unit/fine-grained.test
index 232bafc52e59..25675fccbfb4 100644
--- a/test-data/unit/fine-grained.test
+++ b/test-data/unit/fine-grained.test
@@ -8553,8 +8553,9 @@ from typing_extensions import Literal
 def expect_3(x: Literal[3]) -> None: pass
 expect_3(foo)
 [file mod1.py]
+from typing_extensions import Final
 from mod2 import bar
-foo = bar
+foo: Final = bar
 [file mod2.py]
 from mod3 import qux as bar
 [file mod3.py]
diff --git a/test-data/unit/fixtures/isinstancelist.pyi b/test-data/unit/fixtures/isinstancelist.pyi
index 25ff5888a2cf..2730e1663c50 100644
--- a/test-data/unit/fixtures/isinstancelist.pyi
+++ b/test-data/unit/fixtures/isinstancelist.pyi
@@ -51,3 +51,4 @@ class set(Generic[T]):
     def add(self, x: T) -> None: pass
     def discard(self, x: T) -> None: pass
     def update(self, x: Set[T]) -> None: pass
+    def pop(self) -> T: pass