In this article, we will discuss the items that are treated as ‘Profits in lieu of salary’. ‘Profits in lieu of salary’ are taxable as salary under section 17(1). According to section 17(3), ‘Profits in lieu of salary’ includes the following:
Explain the provision relating to ‘Profits in Lieu of Salary’
Items treated as ‘Profits in lieu of salary’
(a) the amount of compensation due or received by an assessee from his employer or former employer in connection with the termination of his employment is treated as ‘Profit in lieu of salary’. However, amount paid to ex-employees under settlement is not ‘Profit in lieu of salary’.
(b) the amount of compensation due or received by an assessee from his employer or former employer in connection with the modification of the terms and conditions of employment.
(c) any payment, except the terminal and other payments specifically exempted under clauses (10), (10A), (10B), (11), (12), (13), or (13A) of section 10, due or received by an assessee from an employer or former employer or from a provident fund or other fund, to the extent to which it does not consists of contributions by the assessee or interest on such contributions.
(d) amount received under a Keyman insurance policy including the sum allocated by way of bonus on such policy.
(e) any amount due or received, whether in lumpsum or otherwise, by any assessee from any person before his joining any employment with that person or after cessation of his employment with that person.
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Explain the provision relating to ‘Profits in Lieu of Salary’
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Special Points to be noted:
(a) When the payment is received from an unrecognized provident fund or unapproved superannuation fund, interest included on assessee’s own contribution is to be treated as ‘Income from other sources’.
(b) Compensation paid by the employer voluntarily will not be treated as ‘Profits in lieu of salary’.
(c) In order to characterize a particular payment received from an employer on termination as ‘Profits in lieu of salary’ it is to be shown that the amount due or received as ‘compensation’.
(d) If payment is made voluntarily by an employer out of his own sweet will and is not under any legal obligation, such payment is not to be treated as ‘Profits in lieu of salary’.
(e) Compensation received on voluntary resignation would also be treated as ‘Profits in lieu of salary’.
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