Seeking Clarification on Tax Implications for Ex-Gratia Payment Received After layoff

[Karan]

Hi,
I was laid off from my job and was paid 4 months salary as ex gratia subsection under the salary section in my Form 16. I was a manager in my last role and the ex-gratia amount is 17 lacs and was taxed by this employer in its entirety(not 12.5 lacs u/s 10b or 10c). This is adding substantial tax this AY, esp in year that’s been so turbulent. Can someone please help if there’s any deduction allowed? I see conflicting reads on the internet about ex-gratia taxability, with some saying its not taxable at all and some saying everything is taxable.

AI Summary

Ex-gratia on termination taxed as salary under Section 17(3); exemptions under Sections 10(10B)/10(10C), Section 89(1) relief via Form 10E Ex-gratia paid on termination was treated as salary and taxed in full by the employer; such payments are generally taxable as 'profits in lieu of salary' under Section 17(3) unless they meet the strict conditions for exemption under Section 10(10B) (retrenchment) or Section 10(10C) (VRS). Practical relief is limited to tax mitigation under Section 89(1) by seeking relief for lump-sum or arrear receipts (requires filing Form 10E before the ITR), and classification may turn on whether the payment was contractually obliged by the employer.