Ex Gratia Payment - Definition & Advantages of Ex Gratia Payment | What is Ex Gratia Payment?

Ex gratia payments are voluntary, usually made as a gesture of goodwill or to compensate for a loss. 

These payments are common in India in situations such as job layoffs, on-the-job injuries or deaths, natural disasters, or work relocations. 

They are generally tax-free unless made in place of salary. The amount is not limited but is based on the recipient's needs and circumstances. 

Key Aspects of Ex Gratia Payments

• Voluntary and not legally required.

• Can compensate for a loss or hardship.

• Generally tax-free.

• Amount is flexible, depends on recipient's needs and circumstances.

Common Situations for Ex Gratia Payment

• Job layoffs or terminations.

• Work-related injuries or fatalities.

• Natural disasters.

• Work relocations.

Ex Gratia Payment Examples

• In 2020, ₹10 lakh was given to each family of a COVID-19 victim.

• In 2019, ₹2 lakh was paid to each laid-off employee in a government downsizing.

• In 2018, ₹5 lakh was paid to each employee injured on the job.

How to Calculate Ex Gratia Payment

There's no set formula. The amount is decided by the payer, considering the severity of the loss, the recipient's financial resources, and the payer's ability to afford the payment. 

Taxation of Ex Gratia Payments

Ex gratia payments are typically tax-free in India, with some exceptions. Taxable payments will be taxed as income, with the rate depending on the recipient's income tax bracket. 

Some of the tax-free exceptions include payments made to laid-off employees, injured or deceased employees, their families, natural disaster victims, and victims of terrorist attacks.