What Exactly Is 'Ex-Gratia' and How Does It Benefit Both Employees and Employers?

Dear Seniors,

Please reply, what is 'Ex-Gratia'? How is it useful for employees and employers?

With Due Regards,

Tribikram

Dear Tribikram,

"Ex-gratia" is Latin (lit. 'by favour') and is most often used in a legal context. When something has been done ex gratia, it has been done voluntarily, out of kindness, or grace. In law, an ex gratia payment is a payment made without the giver recognizing any liability or legal obligation.

In most cases, ex-gratia is paid along with the annual bonus. Since the Payment of Bonus Act puts a cap on a 20% bonus for employees, the employer and employee agree to pay a higher amount than 20% and coined a new term, ex-gratia, which is paid along with the bonus.

Rgds,
Suresh Ramalingam
Consultant - Compliance

Hi,

When an employer gives Ex-gratia, i.e., on top of the annual bonus, is that considered taxable income? How is it treated in terms of income tax?

Please let me know.

Pradeep

Dear Friends,

I fully agree with Mr. Suresh Ramalingam. However, there is additional information to consider. For industries like service industries (such as hospitals) and social work organizations, where the concept of "No profit No loss" applies, ex-gratia payments are provided to employees since they are not covered under the Payment of Bonus Act.

In the case of ex-gratia payments, there is no ceiling, and the percentage may vary from year to year, solely at the discretion of the management.

Mangai

Is Ex-Gratia Taxable?

We paid this amount along with the salary at the time of Diwali as a one-time payment. Can anybody tell me if it is taxable or not?