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Ex gratia payment is tax free or not

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(Querist)
06 November 2008 Dear Expert

Ex gratia payment is tax free or not if employee worked in Private limited, company management has plan to give 2lac in the way of ex gratia (other than PF & Gratuity) for employee death. whether we can deduct TDS on Ex gratia payemnt?
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S.Srinivasaraghavan

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S.Srinivasaraghavan (Expert)
06 November 2008 If the employee had died and payment is only to the legal heirs, this does not assume the character of salary. The payment will be definitely disputed in tax assessment of your company. THe recipient will also be liable for tax under section 56 of IT Act.
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