Income under the head of Salaries :

Profits in lieu of salary {Section 17(3)}

• Section 17(3) of the Income Tax Act gives the definition of profits in lieu of salary. This section includes the amount of any compensation and payments from a unrecognised provident fund or an unrecognised superannuation fund.
• The amount of any compensation due to or received by an employee from his employer in connection with the termination of his employment is regarded as profits in lieu of salary and hence taxable.
• Payments due to or received by an assessee from an unrecognised Provident Fund or an unrecognised superannuation fund are taxable as profits in lieu of salary to the extent of payments that do not consist of contribution by the employee or interest on employee contribution. In other words total employer's contribution and interest on such employer's contribution are taxable. However, this is not taxed during the period of employment. However, the accummulated balance when paid to the employee either on retirement or termination of service the employer's contribution and interest there on is taxed as profit in lieu of salary. And the interest on employees contribition is taxed as income from other sources.
• When an assessee receives a payment under a keyman insurance policy or it is due to him including the bonus on such policy is also regarded as profit in lieu of salary w.e.f. 1.10.96.