Profit In Lieu Of Salary

What is profit in lieu of salary?

Profit in lieu of salary are the payments received or due to the employee by the employer in addition to the wages or salary is known as “Profit in lieu of salary.” As the definition of salary includes profit in lieu of salary, it becomes taxable under the head “income from other sources”. 

What does profit in lieu of salary include?

As per section 17(3) of the Income Tax Act, 1961, “Profits in lieu of salary” includes—

1. Any amount due or received as compensation in connection with 

• Termination of is employment, or 
• Modification of the terms and conditions of the employment 

2.Payment received from the unrecognized provident fund, i.e., employer and employee contribution and interest accrued thereon, will be taxable.

3.Any amount received under the keyman insurance policy taken by the employer for the life of the employee. It includes any sum provided by way of bonus on such policy.  

4.Any amount due or received by the employee, whether lump sum or otherwise, 

• Before joining the employment, or
• After cessation of the employment. 

5.Any other amount received by the employee from the employer shall be treated as profit in lieu of salary unless that amount is specifically exempt under the Income-tax act.