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Tax on Ex-Gratia: Do you know that there is no need to pay any income tax on the amount received as grant or compensation. Tax experts say that there is no need to disclose such amount even in ITR.
New Delhi. Many people lose their lives every year in the country, sometimes due to floods, arson, train or road accidents and sometimes terrorist attacks. After any such disaster, the government provides financial assistance to the victims and affected families. Like after the terrorist blast in Delhi, Chief Minister Rekha Gupta announced relief. Now the question arises whether you will have to pay tax on this financial assistance received from the government. We also try to know the answer to this from the income tax expert.
First of all, let us know how much relief has been given to the affected people after the Delhi blast. Delhi CM has announced that a relief package of Rs 10 lakh will be given to the families of those who lost their lives in the blast, Rs 5 lakh to those who became permanently disabled and Rs 2 lakh to the injured. Besides, the government has also said that it will bear the entire cost of treatment of the injured. Will this money be completely safe or will income tax law be applicable on it?
What is ex-gratia or grant?
Ex-gratia amount or estimate is given when there is loss after a natural disaster. This includes accidents, natural disasters or other similar incidents. One does not have to face any kind of legal hurdle to get its payment. Under the Income Tax Act, income tax has to be paid only on revenue, whereas money received under capital receipt or compensation is outside this law. Unless they are specifically included in the Income Tax Law.
Will Rs 10 lakh be tax free?
According to Himank Singla, founding partner of SBHS & Associates, under this income tax law, the amount of Rs 10 lakh given by the Delhi government to the families of those who lost their lives in the blast will also be out of the ambit of tax. This amount is being given as compensation, hence no tax will have to be paid on it. This money is not being received in return for any service or work. Nor is it being paid through any profession or other source of income. Therefore, there will be no need to disclose it even in the income tax return.
What law will apply to this money
Pratibha Goyal, partner of PD Gupta & Company, says that any compensation amount received from the Centre, State or local body remains out of the scope of income tax. Tax expert Balwant Jain says that under Section 10 (BC) of Income Tax, any such grant comes under the Disaster Management Act, 2005. Therefore, there will be no need to pay income tax on any such money or disclose it in ITR.
