Following the tragic explosion near Delhi’s Red Fort on Monday evening, the Delhi government has announced financial assistance for the victims and their families. The blast occurred when a high-intensity explosion occurred in a car near Gate No. 1 of the 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 been permanently disabled will receive Rs 5 lakh, while those who suffered serious injuries will get Rs 2 lakh. The government has also assured that all those who were injured in the blast will receive proper and quality medical treatment at its expense.
What is ex gratia payment? An ex gratia payment refers to a financial sum given by the government or an organisation as a gesture of goodwill or relief, without any legal obligation to do so. Such payments are typically announced after accidents, natural disasters, or tragic incidents to provide immediate monetary support to affected individuals or their families.
Also Read: Delhi Red Fort blast: Does your insurance policy cover terrorist attacks?
In this case, the Delhi government’s move is aimed at easing the financial burden of those impacted by the Red Fort blast and helping them with urgent medical and rehabilitation expenses.
A common question, however, arises in such cases is the ex gratia amount taxable?
Under the Income-tax Act, only revenue receipts are generally taxable, while capital receipts are not chargeable to tax unless they are specifically brought within the scope of taxation by the Act.
"The Rs 10 lakh ex gratia announced by the Delhi Chief Minister for the families of the Red Fort car blast victims is in the nature of a capital receipt, as it represents a compassionate payment made by the State Government to provide relief for loss of life in a tragic incident. It is neither a payment for any services rendered nor a consideration for any business or profession carried on by the recipient. Accordingly, the Rs 10 lakh received by each family is not taxable, and not required to be disclosed in the income tax return," said Himank Singla, founding partner, SBHS & Associates.
“Any amount received from the central government, state government, or local authority is exempt from income tax,” explained Pratibha Goyal, Partner at PD Gupta & Co.
Mumbai-based tax expert Balwant Jain further clarified the legal provision behind this exemption. “It is not taxable. It is exempt under Section 10(BC) of the Income Tax Act, provided it qualifies as a disaster under the Disaster Management Act, 2005,” he said.
This provision ensures that financial aid meant for relief and rehabilitation does not get reduced due to tax deductions. Therefore, in cases of disasters, accidents, or terror attacks recipients of government compensation are not required to pay any income tax on these payments.
As investigations continue to determine the cause and those responsible for the blast, the government’s financial assistance offers some immediate relief to those affected by this tragic and alarming incident.
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