After the blast near Delhi’s Red Fort on Monday evening, the Delhi government has announced financial assistance for the victims and their families. This explosion took place near Gate No. 1 of Red Fort metro station. Delhi Chief Minister Rekha Gupta announced that an ex-gratia amount of Rs 10 lakh will be given to the families of those who lost their lives in the blast. Those who have become permanently disabled will get Rs 5 lakh and those who are seriously injured will get Rs 2 lakh. The government has also assured that all those injured in the blast will receive proper and quality medical treatment at its own expense. Now the biggest question is whether any tax is levied on the ex-gratia amount given by the government or not and if so, then how much? Let us try to understand this…
What is ex-gratia amount?
Ex-gratia amount is a financial amount given by the government or any organization as relief, for which there is no legal obligation. Such payments are usually announced after accidents, natural disasters or tragic events to provide immediate economic assistance to the affected individuals or their families. In this case, this step of the Delhi government is aimed at reducing the financial burden of the people affected by the Red Fort blast and helping them with their immediate medical and rehabilitation expenses.
Is ex-gratia amount taxable?
According to tax experts, the answer is no. Pratibha Goyal, partner of PD Gupta & Company, said in the Money Control report that any amount received from the Central Government, State Government or local authority is tax free. Mumbai-based tax expert Balwant Jain further clarified the legal provision behind this exemption in a media report. He said that this amount is tax free. It is exempt under Section 10(BC) of the Income Tax Act, provided it qualifies as a disaster under the Disaster Management Act, 2005.
This provision ensures that the financial assistance given for relief and rehabilitation is not reduced due to tax deductions. Therefore, recipients of government compensation in cases of disasters, accidents or terrorist attacks do not have to pay any income tax on these payments. While investigation is underway to ascertain the cause of the blast and those responsible for it, the Government’s financial assistance provides immediate relief to the people affected by this tragic and worrying incident.