Income tax on ex-gratia payment

Tax queries 919 views 8 replies

S Kalyanasundaram

Faculty

94 Points Joined February 2015

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

Replies (8)

Dhirajlal Rambhia

SEO Sai Gr. Hosp.

208122 Points Joined July 2016

Ex gratia is not taxable.

What you will get may not be defined as ex-gratia.

S Kalyanasundaram

Faculty

94 Points Joined February 2015

But the bank describes / terms this as exgratia.

S Kalyanasundaram

Faculty

94 Points Joined February 2015

But the bank describes / terms this as exgratia.

Dhirajlal Rambhia

SEO Sai Gr. Hosp.

208122 Points Joined July 2016

Under which section TDS been deducted?

S Kalyanasundaram

Faculty

94 Points Joined February 2015

The bank was requested to credit pension and exgratia separately but the request was declined. Hence there is only a combined credit every month (pension plus exgratia). So the deduction of tax is as applicable for pensison/salary ony for the entire amoiunt.

Dhirajlal Rambhia

SEO Sai Gr. Hosp.

208122 Points Joined July 2016

If TDS is deducted over entire amount, you can treat the entire amount as pension only.

S Kalyanasundaram

Faculty

94 Points Joined February 2015

Pension comprises Basic Pension, Dearness Allowance and Ex-gratia. Earlier there used to be only Basic pension and DA. Ex-gratia is a new component. Though it is credited along with pension, it is distinctly described as Ex-gratia. Ex-gratia may be modified/increased/decreased in future. Even it may be fully withdrawan.

As the banks treat the entire amount as pension, it calculates TDS on the entire amount. Not the other way around (i.e. as the TDS is deducted we have to treat it as pension).

In all places, the amount is described as Ex-gratia only. When you term this component as Ex-gratia, how it is taxable, based on the cases cited earlier?

Thanks for your effort in clarifyng the doubt.

Regards.s