Home»Blog»Income Tax»Section 17 of Income Tax- Salary, Perquisites and Profits In Lieu of Salary
Section 17 of Income Tax- Salary, Perquisites and Profits In Lieu of Salary
24 May 2022
Section 17 of the Income Tax Act contains a detailed categorization of the three different parts of employee benefits an employer provides. Salary, perquisites and profits in lieu of salary are the three different sections you will get to know in this section.
Provisions under Section 17 of Income Tax
There are three different provisions under Section 17 of Income Tax that discuss three different parts of employee benefits.
While filing for income tax returns, salary is the most prominent income head among the other heads of income. Therefore, section 17(1) discusses the salary in detail.
Meaning of “Salary” Under Section 17(1)
Section 17(1) of the ‘Salary’ includes wages, advance of salary, commission, fees, and any profit instead of salary or wage as provided by an employer to an employee. This is only applicable to an employee-employer relationship. For example, if you receive your salary as a partner in a partnership company, it won’t be treated as a salary under this subsection.
Annual addition to the credit balance of an employee opting for another provident fund to a limit where it is chargeable to income tax
The salary provided by an employer is the accumulation of basic allowances for an employee. Besides the basic allowances, an employee receives perquisites and profits besides just the salary. The second sub-section talks about the perquisites.
Perquisites under Section 17(2)
Perquisites are benefits provided to an employee in kind. They are only taxable under the head of ‘salary’ if they are:
Allowed by the employer to the employee and not as a partner in a partnership firm
Allowed during the continuation of the employment
Resulting in personal benefits for the employee
Dependant directly on the service
Inclusions in Section 17(2)
Perquisites as mentioned in Section 17(2) are listed below:
Rent free accommodation
Concession on rent of accommodation
Amount of the facilities provided by the employee or concession on the amount in the following cases:
To an employee who is a Director
To an employee who has a substantial interest in the company
To an employee whose salary exceeds Rs. 50,000 excluding all the facilities and benefits and also who doesn’t come under any of the aforementioned conditions
Amount bearable by the employer for any responsibility which is supposed to be paid by the employee
Amount bearable by the employer through a fund or directly, except funds like provident fund, superannuation fund or deposit-linked insurance fund for the purpose of an annuity contract or life assurance of the employer
Value of security paid by the employer for an employee wholly or at a concessional rate
Contribution towards the superannuation fund for an employee which is above Rs. 1,50,000
Fringe benefits mentioned under section 17(2)(vii)
This sub-section of Section 17 mentions ‘Profits in lieu of Salary’ under the income head ‘salary’. Profits in lieu of salary refer to the additional benefits provided by an employer to an employee. These benefits are made mostly in the form of cash. You might get confused between a whole lot of profits or perks provided by the employer and which come under this section and which don’t. The following discussion will help you understand which incomes come under this provision.
Incomes under Section 17(3)
Amount received under an unrecognised provident fund or superannuation fund
Payment under Keyman Insurance Policy
Payment received before joining or after the termination of employment
Any other amount received by an employee from the employer voluntarily or in accordance with a legal obligation
All these perks as mentioned in Section 17 of the Income Tax Act fall under the income head, ‘Salary’ and are taxable by the Government.
FAQs on Section 17 of the Income Tax Act
Q1. What are the incomes which do not fall under Section 17(3)?
The following incomes are not covered under ‘Profits in lieu of Salary’: Commuted amount in pension Death-cum-retirement gratuity Amount received from a statutory or recognized provident fund Retrenchment compensation received by a workman Amount under a recognized superannuation fund House rent allowance
Q2. What is the difference between a recognized and unrecognized provident fund?
If the Commissioner of Income Tax approves a provident fund under EPF and Miscellaneous Provisions Act, 1952, it becomes a recognized provident fund. He/she disapproves of an unrecognized provident fund.
Q3. What is terminal compensation?
Terminal compensation is the amount an employee receives in compliance with the termination of employment or modification in terms and conditions of employment.
If the amount of a provident fund is received under the Provident Fund, 1925, then the entire amount is tax-exempted. In addition, any lump sum amount received from a PPF started in 1968 at the time of retirement is also tax-free.
Before you go…
Looking for instant 🚀 personal loans 24*7 anywhere, anytime? Get personal loans up to ₹20 lakh starting at 9.9% p.a. Install the Navi app now!!
Or, maybe you’re looking to buy that house you’ve been eyeing 🏠 and you need a loan of up to ₹5 crore. Install the Navi app now and get instant in-principle approval right away! Interest rates starting at 8.39% p.a.
How about an affordable health insurance policy👨⚕️ starting at a monthly premium of just ₹235? Install the Navi app now and get your policy in under 2 minutes.
Instead, want to put your savings into action and kick-start your investment journey 💸 But don’t have time to do research. Invest now with Navi Nifty 50 Index Fund, sit back, and earn from the top 50 companies.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme-related documents carefully.
This article has been prepared on the basis of internal data, publicly available information and other sources believed to be reliable. The information contained in this article is for general purposes only and not a complete disclosure of every material fact. It should not be construed as investment advice to any party. The article does not warrant the completeness or accuracy of the information, and disclaims all liabilities, losses and damages arising out of the use of this information. Readers shall be fully liable/responsible for any decision taken on the basis of this article.
Vikram Kirloskar Origins – From Bicycle Repair Shop to Toyota
Facial Recognition-based Entry System in Airport Launched. Know More!
15 Best Christmas Gift Ideas Even Santa Wouldn’t Ignore
RBI Launches Digital Rupee – Is it Like Crypto?
The G.O.A.T. – Messi’s 7 Life-Changing Quotes You Can’t Ignore
Mercedes or SIPs – Indians Tweet Their First Choice
How to Open Demat Account: Fees, Eligibility, Documents
Udd Gaye Totey: 9 Funny Tweets that Got Indians ROFL
10 Best Places to Celebrate New Year 2023 in India
We are a diverse group of writers, editors and Subject Matter Experts striving to bring the most accurate, authentic and trustworthy finance and finance-related information to our readers. Our mission is to simplify jargon and industry lingo. We believe sharing knowledge through relatable content is a powerful medium to empower, guide and shape the mindset of a billion people of this country.
What is Section 80D of Income Tax Act: Deductions for Medical & Health Insurance
Section 80D of the Income Tax Act, 1961, offers health insurance policyholders tax benefits to redu...Read More »
Section 115BAA of Income Tax Act
The Government of India brought in multiple amendments to the Income Tax Act of 1961 through the Ta...Read More »
Best Tax Saving SIPs in 2023: 10 ELSS Funds You Can Consider Investing In Through SIPs
SIP or Systematic Investment Plan is one of the most effective tax-saving instruments. You can clai...Read More »
Professional Tax: 2023 Slab Rates, Exemptions & Applicability In India
Professional tax in India is levied on anyone who is employed. From professionals such as accountan...Read More »
What is Profit After Tax and How is it Calculated? Why is it Important for Companies?
An essential step for all organisations is to ensure that they continuously monitor the amounts of ...Read More »
What is Accounting Equation – Meaning, Formula and Calculation with Example
Regardless of the size of the company, financial statements are created using a basic accounting eq...Read More »
Cost Inflation Index: What is CII and How is it Calculated?
The price of commodities rises over time, reducing the purchasing power of money, which is the numb...Read More »
What is White-Collar Crime and What is the Penalty?
White shirts, black coats and well-ironed ties are typical stereotypes representing the rich and el...Read More »
Form 12B – Its Significance in Income Tax and How to fill it
When you join a new company in the middle of a financial year, you must complete several formalitie...Read More »
What is Cash Memo, Its Benefits and How to Create It?
All transactions in accounting must have accurate documentation as proof of financial trail. Docume...Read More »
What is Condonation of Delay in Law? What are its General Principles?
As per the Indian law, there is a certain time frame to submit all forms and applications to the Re...Read More »
Foreign Exchange Management Act (FEMA): Its Regulations and Penalties
Import and export are essential components of the aggregate trade that occurs in India. Import-expo...Read More »
Diwali 2022: Diwali Holidays – The Festival of Lights
The ‘Festival of Lights’ is one of the biggest and most anticipated festivals in India. This is...Read More »
Best Index Funds – Top 20 Index Funds in India
Index funds replicate the performance of a stock market index, such as the Sensex or Nifty 50 to ge...Read More »