Gratuity (derived from Gratitude - meaning appreciation) is an amount based one your last salary drawn (Basic + DA only) that is paid by your employer as a mark of long service. It is usually applicable after 5 years of service with an organization.

In true sense, if you have completed 5 years in an organization, you are likely to be paid gratuity in case you resign or retire from the organization. The amount depends on how many years you have worked beyond 5 years.

In my experience under a private enterprise, it is not a must for an employee to opt for gratuity, in which case this is sometimes paid as a part of the salary. From a tax perspective, it is a taxable income.