Taxation of ex-gratia given for layoff

Income Tax Act 1961
1

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. Please help.

2

An ex-gratia payment received due to a layoff is taxable under salary unless it qualifies as statutory retrenchment compensation under Section 10(10B). Since a lump-sum payout significantly increases the tax liability for the assessment year, the taxpayer can mitigate this tax spike by filing Form 10E to claim tax relief under Section 89(1).