Section 17(3) gives us an inclusive definition of “Profit in lieu of salary”. As the name suggests, these payments are received by the employee in lieu of or in addition to salary or wages.
These payments includes the following:
Here the termination may be due to Retirement, Premature termination, Resignation or otherwise. The amount of any compensation can be received from:
- his employer, or
- his former employer
at or in connection with the termination of his employment or the modification of the terms and conditions.
Payment from an Unrecognized Provident fund or an Unrecognized Superannuation fund
The next category of such profit in lieu of salary you should know is payment received or due from an unrecognized provident fund or unrecognized superannuation fund.
The amount due or received does not consist of contributions by the employee or interest on such contribution.
In other words, total employer’s contribution till date and interest on such employer’s contribution would be taxable.
When the accumulated balance of such a fund is paid to the employee, the untaxed portion, i.e., the employer’s contribution with interest is taxed as ‘Profit in lieu of salary’.
The interest on employee’s contribution is taxed as ‘Income from other sources’.
Payment under Keyman Insurance Policy
Any payment due or received by the employee, under a Keyman Insurance Policy including the sum allocated by the way of bonus on such policy, will also be regarded as profit in lieu of salary.
Any amount due or received before joining or after cessation of employment
Any amounts due or received, whether in lump sum 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.
Any other sum received by the employee from the employer
All other payments made by an employer to an employee, would be brought under the head “Profit in lieu of salary”. However there are certain receipts which are not termed as ‘profit in lieu of salary'(to the extent they are exempt under section 10):
- Death-cum-retirement gratuity[Section 10(10)]
- Commuted value of pension[Section 10(10A)]
- Retrenchment compensation received by a workman[Section 10(10B)]
- Payment received from a statutory provident fund [Section 10(11)]
- Payment received from recognized provident fund [Section 10(12)]
- Any payment from an approved superannuation fund [Section 10(13)]
- House rent allowance [Section 10(13A)]