Income tax on ex-gratia

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S Kalyanasundaram (Querist)
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23 March 2024 As per settlement reached between bank unions and Indian Banks Association, Banks will be disbursing ex-gratia to bank pensioners. This is on monthly basis and the calculation is based on some formula which in turn depend on the retirement period and the pension that is being drawn now. The amount may vary between Rs.400 to Rs.5600.

Is it true that the said ex-gratia is not taxable? There seems to be a case (Arunbhai R Naik) decided by the Gujarat High Court on the matter wherein it was held that such ex-gratia will not be treated as profit in lieu of salary within the ambit of ‘income from salaries’.

Please also refer to a write up in the Economic Times (https://economictimes.indiatimes.com/definition/ex-gratia-payment)

S Kalyanasundaram

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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05 May 2024 For ex employees of bank, it will be taxable, as it will be treated as 'part & parcel of salary'.

S Kalyanasundaram

S Kalyanasundaram (Querist)
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05 May 2024 Thanks for your response.

I had cited a Gujarat High Court verdict as well as a write up in the Economic Times. As per these documents, ex-gratia is not a taxable income.

Please let me know the basis on which you have concluded that for ex employees of bank it will be taxable.

Regards.

S Kalyanasundaram

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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05 May 2024 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.

These payments :: 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, are tax exempt... If you were laid off by your employer, you can claim it to be tax free, but when it is paid as regular pension, it will be taxable.

S Kalyanasundaram

S Kalyanasundaram (Querist)
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06 May 2024 Thanks for your clarification.
Regards.
S Kalyanasundaram

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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06 May 2024 Finally, let me suggest you to check form 26AS (whenever such payment is made, in future) and decide accordingly.

Dhirajlal Rambhia

Dhirajlal Rambhia (Expert)
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08 September 2024 Good Luck.

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