Ex-gratia death compensation paid to legal heirs of an employee
This query is : Resolved
19 May 2026
Employer (Partnership Firm) is paying school fees every year for the children of a deceased employee. Can the employer claim this expenditure as a deduction under the Income-tax Act for every year during which such ex-gratia/compassionate assistance is continued to the legal heirs of the employee who died while in service? If yes, please share the relevant provisions/rules for record purposes.
19 May 2026
The Partnership Firm can claim a deduction for the annual school fees under Section 37(1) of the Income Tax Act. Although voluntary, judicial precedents confirm that compassionate payments to a deceased employee's family are treated as expenditures incurred "wholly and exclusively for business purposes" because they build staff goodwill and loyalty.
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