If you follow the Payment of Gratuity Act, he may not be entitled to get gratuity but since he has already completed four years of service and you are sending him out before the project comes to an end, your act of demanding or even requesting his resignation shall only be treated as an effort to avoid payment of gratuity. That will not be allowed and the notice period which an employee is entitled shall be counted as service and if so, he will get entitlement for gratuity. Hope you have a notice period clause in your appointment order served to the employee that the employee should serve one month notice if he wants to leave and if so, that is applicable to you also.
As the project has not come to an end, and there was no predetermined date of expiry of contract with the employee, your request to the employee to resign shall also mean that you are terminating or retrenching his service. If so, you are liable to pay him retrenchment compensation also at the rate of 15 days salary for every completed year of service, ie, five years. On the other hand, if he serves the full tenure of the contract and is terminated on completion of the project you need not pay retrenchment compensation.
Either gratuity or retrenchment compensation is a must. Both are almost equal amount but gratuity will be little bit higher since it is worked out by average salary based on 26 days whereas retrenchment compensation is worked out based on 30 days. The risk is that if you retrench him now and the employee approaches the Payment of Gratuity Authority, he may award that gratuity should be paid. If so, your liability would be double.
Regards,
Madhu.T.K