Gratuity is the amount payable by the employer to the employee as recognition for the long term association of the employee with the employer.

It may be payable by the employer in two ways:

★ On employee's retirement.

★ On the death of the employee to the legal heirs of the employee.

But in both the cases the treatment will be different. The amount paid by the employer to the employee on his retirement is taxed as 'Income from Salaries' while the amount paid by the employer on the death of the employee is taxed as 'Income from Other Sources'.