Profit In Lieu Of Salary – Section 17(3)

The Following article deals with the Profit In Lieu Of Salary. Profit In Lieu Of Salary come under the section 17(3) of the income tax. Profit In Lieu Of Salary is also called the In Addition to Salary. The following article clearly explains the meaning of  Profit In Lieu Of Salary and what is Profit In Lieu Of Salary. 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.

Profit In Lieu Of Salary – Section 17(3

Profit In Lieu Of Salary – Section 17(3)

  1. The amount of any compensation due to or received by an assessee from the employer or former employer at or in connection with the termination of his employment. The ‘termination of employment’ means retirement, premature termination of employment, termination by death or voluntary resignation.

    Generally, under the Income tax Act, the income that is chargeable to tax is only a receipt which is revenue in nature; receipts of a capital nature are not chargeable to tax but this provision constitutes an exception to this rule because compensation received by an employee for termination of his employment would be a capital receipt since it is received in replacement of the sources of income itself.

    Still it is chargeable to tax because of the specific provision in the Act. However, relief under Section 89(1) would be available to the assessee in cases where he gets money which represents a profit in lieu of salary.

    The amount of any compensation due to or received by any assessee from his employer in connection with the modification of the terms and conditions relating to employment. For example, where an employer wants to cut down the salary payable to the employee, the lump sum paid to compensate the employee shall be treated as profits in lieu of salary. In the same way, where the remuneration for services is paid at the end of the period of employment or a lump sum remuneration is paid at the beginning of employment for a number of years, such payment shall be treated as profits in lieu of salary.

  2. Any amount due to or received, whether in lump sum or otherwise, by any assessee from any person – (A) before his joining any employment with that person; or (B) after cessation of his employment with that person.
  3. Any payment other than the following payment due to or received by 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 contribution by the assessee or interest on such contributions by the assessee or interest on such contributions or any sum under keyman Insurance Policy.

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