§ 18
Chapter IV — Computation Of Total Income
Profits in lieu of salary
Income-tax Act, 2025
As a business owner, it's essential to understand what constitutes 'profits in lieu of salary' for tax purposes. This includes compensation received due to employment termination or modification, amounts received before or after employment, and certain payments from employers or funds. Some examples of these payments include:
- compensation for employment termination
- lump sum payments before or after employment
- payments from provident funds (excluding contributions and interest)
📜 Official text of the section +
18. (1) For the purposes of this Part, “profits in lieu of salary” includes,—
( a) the amount of any compensation due to, or received by, an assessee from
his employer or former employer at or in connection with the—
( i) termination of his employment; or
( ii) modification of the terms and conditions relating thereto;
( b) any amount due to, or received, whether in lump sum or otherwise, by
any assessee from any person—
( i) before his joining any employment with that person; or
( ii) after cessation of his employment with that person;
( c) any payment due to or received by an assessee—
( i) from an employer or a former employer; or
( ii) from a provident or other fund, to the extent to which it does not
consist of contributions by the assessee or interest on such contri-
butions; or
( iii) any sum received under a Keyman insurance policy as defined in
Schedule II (Note 1), including the sum allocated by way of bonus
on such policy.
(2) The payment referred in sub-section (1)(c) shall not include any payment referred
to in—
( a) Schedule II (Table: Sl. No. 3);
( b) Schedule II (Table: Sl. No. 4);
( c) Schedule II (Table: Sl. No. 8); and
( d) Schedule III (Table: Sl. No. 11).
Deductions from salaries.
Plain-language summary — not the official text. Refer to the bare Act and confirm with a professional for your specific case.