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Provision towards exgratia pertaining to 2024-25

629 views 2 replies

Jayanta Bandyopadhyay

413 Points Posted on 10 May 2026

Due to dwindling income, we could not pay exgratia ( as all employees draw salary above Rs.21000 threshold) during 24-25. We had provided liability only for official Cadre but not unionized staffs. This August 26, would like to pay exgratia to all. If we pick up liability provision towards exgratia payable to unionized staffs in July, whether any tax leverage or loss of tax break will be there. Please suggest the best course of action. Regards,

Replies (2)

Quick Summary

Ex-gratia paid in August 2026 will generally be deductible only in FY2026-27 under Section 43B on payment basis. If liability for unionized staff was not provided earlier, companies may account for the short provision in FY2025-26 or FY2026-27 based on accounting standards and auditor guidance.

Aashok FC Advisory

Finance Compliance Consultant

1111 Points Posted on 10 May 2026

Under Section 43B of the Income Tax Act, ex-gratia is deductible only on a payment basis. If paid in August 2026, the tax deduction will be available for FY 2026-27. There is no tax "leverage" for the previous year (2024-25) if the payment deadline has passed, but the benefit is preserved for the year of payment.

Jayanta Bandyopadhyay

413 Points Posted on 11 May 2026

Many thanks Sir for your guidance.

Here, liability provisions were not made in 24-25. So to that extent, liability was under provided in BS. Then auditors should have mentioned it. Now while closing books of account of 25-26, we are picking up 24-25 liability in June 26 only. My reading is that we should pick up this short provisions in 26-27, as we are already in May 26. In such a scenario what are ideal action. Please guide.

Regards