The Payment of Gratuity Act No. 12 of 1983 gives a gratuity to employees in establishments with 15 or more workers who are not covered by a more favourable scheme (notably EPF/ETF members) — provided the service ends after at least 5 years of continuous service with the same employer.

The entitlement is half a month's basic wages for each completed year of service. When service ends by retirement, death or disablement, the incomplete final year counts as a full year.

Rs 50,000 monthly basic, 8 years of service, retiring: ½ × 50,000 × 9 (final year counted in full) = Rs 225,000. Resigning after exactly 8 years: ½ × 50,000 × 8 = Rs 200,000.

Only basic wages count — allowances, overtime and bonuses are excluded from the formula.

No gratuity under the Act. What you still receive: notice-period pay, accrued annual leave in lieu, and your EPF/ETF balances (where applicable). Some employers pay an ex-gratia amount voluntarily — check your contract or handbook first.

A gratuity is taxable as a lump-sum ('other') payment under the APIT rules, not at your monthly marginal rate.