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

Under the Income-tax Act, 2025 (applicable from the June 2027 session), which of the following amounts is expressly included within "profits in lieu of salary" in section 18?

Compensation received from an employer on termination of employment is profits in lieu of salary. Section 18(1)(a) covers compensation from an employer or former employer for termination or modification of employment terms. Savings interest, rent and dividends belong to other heads.

  1. ACompensation received from an employer at the time of termination of his employmentCorrect
  2. BInterest earned by an employee on his own savings bank account
  3. CRent received by an employee from letting out his own house
  4. DDividend received by an employee from shares of a different company

Explanation

Section 18(1)(a) includes any compensation due to or received by an assessee from his employer or former employer at or in connection with termination of employment or modification of its terms. The other three items are income from other heads and have no link to the employer-employee relationship.

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