"It's not about money but respect. When you pay another martyr Rs 11 lakh, why less than half of it to someone who died in a similar situation," said Mr Khan's elder brother Imtiyaz.
According to Bihar government provisions, a compensation of Rs 5 lakh is paid to relatives of a paramilitary jawan killed in the line of duty. In case of army jawans, the amount is more than double - Rs 11 lakh.
"I went there with a cheque of Rs 5 lakh but the family refused to accept it. I have informed my superiors and am waiting for the government's orders," said acting Bhojpur district magistrate Shashank Shubhankar.
Questioning the state government's compensation policy, the family told Mr Kumar that Mujahid had died fighting terrorists and not by drinking hooch. As per government policy, families of those killed in hooch tragedies are paid Rs 4 lakh each.
Mr Khan was killed during an encounter that began on Monday after two heavily armed terrorists of the Lashkae-e-Toiba tried to enter the CRPF's 49th battalion headquarters in Srinagar. After the attack was repulsed by an alert sentry, the terrorists were holed up in a building nearby. They were killed after an operation that lasted more than 30 hours.
On Sunday, Kishore Kumar Munna, an army jawan who was injured in cross-border shelling by Pakistan in Jammu and Kashmir's Poonch earlier this month, died after battling for life at a military hospital in Jammu.
Yesterday, as he was cremated in his village in Bihar's Khagaria district, his family was handed over a cheque of Rs 11 lakh by the district administration. But here too, no government representative or minister turned up.
"I should have been there but could not go. But I will visit the family", said Kapildeo Kamat, who is the minister in-charge of Khagaria district.