INCOME TAX

Taxability of ex gratia payment made by Central Government/State Government/Local Authority/Government Public Sector Undertaking to heirs of employee on his death, etc.

Circular : No. 776, dated 8-6-1999.

Circular No. 573, F.No. 200/115/90-ITA-I, dated 21-08-1990 provided that a lump sum ex gratia payment made, to the widow or other legal heirs of an employee, who dies while still in active service, will not be taxable as income under the Income-tax Act, 1961.

It is noted that there can be situations in which a person or his heir receives ex gratia payment from the Central Government/State Government/Local Authority/Public Sector Undertaking, consequent upon injury to the person/death of a family member, while on duty. Such an ex gratia payment will not be liable to income-tax under the Income-tax Act, 1961.

Circular : No. 776, dated 8-6-1999.