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All-in-one HR platform · v2.0
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Gratuity vs PF is a comparison between a lump sum the employer owes at exit and a savings account both sides pay into every month. Most employees covered by one are covered by the other.
Check before you rely on thisCheck the current gratuity maximum (₹20,00,000), the 15/26 formula and eligibility rules under the Code on Social Security 2020 (in force from 21 November 2025, which replaced the Payment of Gratuity Act 1972 and lets fixed-term employees qualify after one year), the EPF ₹15,000 wage ceiling and rates, and the current Income-tax exemption limit for gratuity.
01
The provident fund (EPF) is a contributory scheme under the Employees' Provident Funds and Miscellaneous Provisions Act 1952. Every month the employee contributes 12% of PF wages and the employer contributes 12%, part of which goes to the pension scheme. The money sits in an account with EPFO and earns interest.
Gratuity is a one-time payment under the Payment of Gratuity Act 1972. Only the employer pays, nothing is deposited month by month under the Act, and it becomes payable when employment ends after the qualifying service.
02
| Factor | Provident fund (EPF) | Gratuity |
|---|---|---|
| Law | EPF and MP Act 1952 and its schemes | Payment of Gratuity Act 1972 |
| Who pays | Employee and employer | Employer only |
| How it builds | Monthly contributions with interest | Formula applied at exit to last drawn wages |
| Rate or formula | 12% employee, 12% employer of PF wages (basic + DA); statutory wage ceiling ₹15,000 a month | 15 days' wages (basic + DA ÷ 26) per completed year of service, s.4 |
| Eligibility | From joining, for covered employees | Five years' continuous service, except on death or disablement |
| Maximum | No cap on the balance | ₹20,00,000 |
| When paid | On withdrawal or retirement, under EPFO rules | On exit: resignation, retirement, termination, death or disablement |
| Where it sits | Employee's EPFO account | Employer's books, or a gratuity fund or insurance policy if the employer has one |
Watch for itA final part-year of more than six months counts as a full year in the gratuity formula. So nine years and seven months is treated as ten years.
03
An employee leaves after 8 years and 7 months with last drawn basic plus DA of ₹40,000. Gratuity is ₹40,000 × 15 ÷ 26 × 9 = ₹2,07,692, rounded. This is paid once, by the employer.
Over the same years, if PF was paid on the ₹15,000 ceiling, ₹1,800 a month went in from each side, with the employer's pension share of up to ₹1,250 going to EPS rather than to the PF account. The PF balance is whatever those contributions and the declared interest add up to.
04
No. They are separate benefits under separate Acts. PF is deposited monthly with EPFO; gratuity is paid by the employer when employment ends.
Under the Act, the five-year condition does not apply on death or disablement. Courts have read some shorter periods as five years in particular cases, so take advice on borderline service.
For employees covered by the Act, gratuity is exempt up to a limit under the Income-tax Act. The limit changes from time to time, so check the current figure.
No. The ceiling is a PF rule. Gratuity uses last drawn basic plus DA in full, subject only to the overall maximum.
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