An ex gratia payment is a voluntary payment made by an organization, government, or other entity to an individual or group of individuals. It is not required by law and is typically made as a gesture of goodwill or to compensate for some type of loss or hardship.
In India, ex gratia payments are often made in the following situations:
-
To employees who are laid off or terminated from their jobs.
-
To employees who are injured or killed on the job.
-
To the families of employees who are killed on the job.
-
To victims of natural disasters or other calamities.
-
To employees who have to relocate for work.
Ex gratia payments are not taxable in India unless they are made in lieu of salary or wages. The amount of the payment is not limited, but it is generally based on the individual's or group's needs and circumstances.
Features of Ex Gratia Payments
-
Ex gratia payments are voluntary and not required by law.
-
Ex gratia payments are typically made as a gesture of goodwill or to compensate for some type of loss or hardship.
-
Ex gratia payments are not taxable in India, unless they are made in lieu of salary or wages.
-
The amount of the payment is not limited, but it is generally based on the individual's or group's needs and circumstances.
Situations Under Which Ex Gratia Payment Is Allowed
Ex gratia payments are allowed in a variety of situations, including:
-
Layoffs or terminations
-
Injuries or deaths on the job
-
Natural disasters or other calamities
-
Relocations
Examples of Ex Gratia Payments
Here are some examples of ex gratia payments that have been made in India:
-
In 2020, the Indian government announced an ex gratia payment of ₹10 lakh (US$12,500) to the families of each person who died in the COVID-19 pandemic.
-
In 2019, the Indian government announced an ex gratia payment of ₹2 lakh (US$2,500) to each employee who was laid off as part of a government downsizing program.
-
In 2018, the Indian government announced an ex gratia payment of ₹5 lakh (US$6,250) to each employee who was injured on the job.
Ex Gratia Payment Calculation
There is no set formula for calculating ex gratia payments. The amount of the payment is usually decided by the organization or government that is making the payment. Factors that may be considered include:
-
The severity of the loss or hardship
-
The financial resources of the recipient
-
The ability of the organization or government to afford the payment
Are Ex Gratia Payments taxable?
Ex gratia payments are taxable in India, but there are a number of exemptions. For example, ex gratia payments made to employees who are laid off are not taxable.
The following are some of the exemptions that apply to ex gratia payments in India:
-
Payments made to employees who are laid off
-
Payments made to employees who are injured on the job
-
Payments made to employees who are killed on the job
-
Payments made to the families of employees who are killed on the job
-
Payments made to victims of natural disasters
-
Payments made to victims of terrorist attacks
If an ex gratia payment is not exempt from taxation, it will be taxed as income. The amount of tax that is payable will depend on the recipient's income tax bracket
Have you made an ex-gratia payment recently and want to find out more exemptions in case of ex-gratia payments?