TaxTMI 
TaxTMI 
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.
Seeking Clarification on Tax Implications for Ex-Gratia Payment Received After layoff
10 Jul 2025 
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Ex-gratia payments on termination are taxable as profits-in-lieu of salary; Section 89 relief can mitigate lump-sum tax impact.
Ex-gratia payments on termination are taxable as profits in lieu of salary unless they meet strict retrenchment or notified VRS exemption conditions. Where treated as salary, relief for lump-sum or advance receipts permits spreading tax impact across years; the taxpayer must follow the prescribed procedure and file the required relief claim form before filing the income-tax return to seek that mitigation. (AI Summary)
Ex-gratia payments on termination are taxable as profits in lieu of salary unless they meet strict retrenchment or notified VRS exemption conditions. Where treated as salary, relief for lump-sum or advance receipts permits spreading tax impact across years; the taxpayer must follow the prescribed procedure and file the required relief claim form before filing the income-tax return to seek that mitigation. (AI Summary)