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CS Executive · Tax Laws and Practice · Income under the Head Salary

Mr. Rohan Mehta receives Rs. 3,00,000 from a company before he formally joins its service, as a payment connected with his proposed employment. Under the Income-tax Act, 2025 (June 2027 session), how is this amount treated?

The Rs. 3,00,000 is profits in lieu of salary. Section 18(1)(b)(i) includes any amount received from a person before joining employment with that person, whether in lump sum or otherwise, so the absence of an existing employment at the time of receipt does not prevent salary treatment.

  1. AIt is profits in lieu of salary, since an amount received from a person before joining employment with that person is coveredCorrect
  2. BIt is not taxable until he actually joins the company
  3. CIt is income from other sources only, because no employment exists at the time of receipt
  4. DIt is exempt because it is a capital receipt

Explanation

Section 18(1)(b)(i) covers any amount due to or received, in lump sum or otherwise, from any person before joining any employment with that person. So the Rs. 3,00,000 is profits in lieu of salary. Treating it as other sources ignores this express inclusion.

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