How Ex-Gratia Payment works
The employer decides the amount and the occasion, festival, performance or exit, and pays it without a statutory formula. It is commonly used to pay a bonus-like amount to employees earning above the Bonus Act eligibility limit.
Why Ex-Gratia Payment matters
Ex-gratia is discretionary, so it is not a guaranteed entitlement, but it is generally taxable as salary. Understanding the difference from statutory bonus helps employees know what they can and cannot claim.
Ex-gratia versus statutory bonus
The two are easy to confuse because both arrive as a lump sum, often around a festival, but their basis is opposite. Statutory bonus is a legal entitlement under the Payment of Bonus Act, with an eligibility limit and a formula. Ex-gratia is a gift: the employer chooses whether to pay, how much, and to whom, with no obligation and no formula. Employers frequently use ex-gratia to pay a bonus-like amount to staff who earn above the Bonus Act limit and so fall outside statutory bonus.
For the employee, the practical points are that ex-gratia cannot be demanded as a right, and that it is generally taxed as salary. A one-time ex-gratia on exit, such as a goodwill severance, may have different treatment depending on the circumstances, but a routine festival ex-gratia is simply added to taxable salary for the year.
Frequently asked questions
Is ex-gratia the same as bonus?
No. Statutory bonus is a legal entitlement under the Payment of Bonus Act with a set formula. Ex-gratia is a voluntary, discretionary payment with no legal obligation.
Is ex-gratia taxable?
Yes, an ex-gratia payment to an employee is generally taxable as salary income.