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What is profit in lieu of Salary – Section 17(3) of Income Tax Act

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Any payment received or due in addition to your salary or wages from your employer is called profit in lieu of salary. Section 17 (3) of income tax act defines profit in lieu of salary as follows;What is profit in lieu of Salary – Section 17 (3) of Income Tax Act

“Profits in lieu of salary” includes—

(i) the amount of any compensation due to or received by an assessee from his employer or former employer at or in connection with the termination of his employment or the modification of the terms and conditions relating thereto;

(ii) any payment (other than any payment referred to in clause (10) [, clause (10A)] [, clause (10B)], clause (11), [clause (12) [, clause (13)] or clause (13A)] of section 10), due to or received by an assessee from an employer or a former employer or from a provident or other fund, to the extent to which it does not consist of contributions by the assessee or  interest on such contributions or any sum received under a Keyman insurance policy including the sum allocated by way of bonus on such policy. 

According to the above section following incomes are treated as profit in lieu of salary and taxable in your hand as ‘SALARY’.

  • Compensation due or received by an assessee from his employer or former employer due to loss of employment or termination or resignation or for any other reason of losing employment.
  • Compensation accrued or received, due to modification of the employment terms.
  • Any payment received from an unrecognized provident or superannuation fund. Under this the employer and employee contribution, interest on there contribution will be taxable.
  • If the company has taken any key man insurance policy in your name and you have received any money from the insurance company due to this policy then that amount will be treated as your salary and income tax has to be paid on that.
  • Any payment received by the employee from the employer or former employer before joining of employment or sum received after the termination of employment.
  • Any other amount received from employer will be treated as profit in lieu of salary unless and until that particular amount is specifically exempted under any section of the income tax act.