Gratuity is a statutory end-of-service payment: half a month's basic wages for each completed year of continuous service, under the Payment of Gratuity Act No. 12 of 1983. It rewards long service and supplements retirement income on top of any EPF balance.

Under the Act, employees in establishments with 15 or more employees who are not covered by a more favourable scheme (notably EPF/ETF members) are entitled to gratuity when their service ends after a qualifying period.

Gratuity under the Act requires at least 5 years of continuous service. Leave before completing five years — resignation or termination — and there is no statutory gratuity entitlement, unless a collective agreement or an individual contract gives you something better.

Service is continuous service with the same employer; interruptions covered by leave or approved absence count as continuous.

Gratuity = ½ × monthly basic wages × completed years of service. Only completed years count, and only basic wages (not allowances, overtime or bonuses).

When employment ends by retirement, death or disablement, the incomplete final year is counted as a full year — this is the one case where a partial year counts. Worked example: 8 years' service at Rs 50,000 basic, retiring → ½ × 50,000 × 9 = Rs 225,000. Resigning after exactly 8 years → ½ × 50,000 × 8 = Rs 200,000.

No gratuity under the Act — your statutory farewell is limited to notice-period pay, accrued annual-leave payment in lieu, and your EPF/ETF balances (where applicable). Some companies voluntarily pay a smaller ex-gratia amount; check your contract or the company handbook before assuming.

The calculator's Gratuity tool shows 'Not entitled' in this case, so the numbers stay honest.

Gratuity is a right, but it is taxable. As a lump-sum payment it is taxed under the rules for 'other' payments (the flat-rate approach the Bonus tool uses) rather than your monthly slabs; the exact rate depends on the year of assessment.

Where the employer provides a gratuity, EPF does not apply to it — it is a terminal payment, not regular earnings.

Model your gratuity with the Gratuity calculator (8 years at Rs 50,000 retiring → Rs 225,000, as above), and see how a terminal payment fits your tax position with the Bonus / lump-sum tax tool.