HDFC Bank announces Rs 1,500 crore ex-gratia: But what is it?

HDFC Bank, India’s largest private sector bank, has recently announced an ex-gratia payment of around Rs 1,500 crore to its employees as a gesture of appreciation for their work during the merger of HDFC Bank with HDFC Ltd.

“There was a lot of hard work that happened in the run-up to the merger and subsequent to that on a much larger balance sheet and led by a complex and adverse liquidity situation in the system. I think the team has rallied to adjust to the new norms; they worked hard after being battered from all fronts at the ground level,” HDFC Bank’s CEO, Sashidhar Jagdishan said.

“It is our endeavour to ensure that the large ground workforce, which is 90 per cent of our total manpower, is motivated and this is a way of trying to say thank you to them,” he said.

What is Ex-gratia

Ex-gratia payments are voluntary payments made by an organisation, government, or other entity to an individual or group of individuals, typically as a gesture of goodwill or to compensate for some type of loss or hardship. They are not required by law.

Ex-gratia payments are often made in situations such as layoffs or terminations, injuries or deaths on the job, natural disasters or other calamities, and relocations. The amount of the payment is not limited, but it is generally based on the individual’s or group’s needs and circumstances.

Key features of ex-gratia payment

Voluntary nature: Ex-gratia payments are made voluntarily by a party, without any legal obligation to do so. They are given out of choice rather than requirement.

Maintaining public image: Companies often provide ex-gratia payments to maintain a positive public image or to demonstrate goodwill towards stakeholders.

Absence of obligation or liability: Ex-gratia payments are free from any legal obligation or admission of liability. They are not mandated by law or contract.

Gesture of goodwill: These payments are seen as gestures of goodwill or generosity,

Employer’s discretion: The decision to provide ex-gratia payments rests solely with the employer or the paying party. There are no legal requirements dictating the amount or frequency of such payments.

Variable amounts: The amount of ex-gratia payments can vary widely, depending on factors such as the organisation’s financial situation, the reason for the payment, and the discretion of the employer.

Is ex-gratia payment different from the bonus?

Yes, ex-gratia is different from a bonus. A bonus is paid according to the employees’ performance in the company while ex-gratia is the additional payment made by the employer out of their goodwill. Paying the bonus is a liability and cannot be avoided by the company.

Is ex-gratia payment taxable?

Generally, all the payments made by the employer to the employees are subject to taxation in India but there are a number of exemptions.

Following are some of the exemptions that apply to ex-gratia payments.

Payments made to employees who are laid off.

Payments made to employees who are injured on the job.

Payments made to the families of employees who are killed on the job.

Payments made to victims of natural disasters Payments made to victims of terrorist attacks.