§18

Section 18 — Profits in lieu of salary

Income-tax Act, 2025 (amended upto 2026)

In plain terms: This section covers profits in lieu of salary: money linked to your job that is not ordinary salary. It includes compensation on termination of employment or change of its terms, payments received before joining or after leaving a job, payments from an employer or provident fund that are not your own contributions and interest on them, and Keyman insurance proceeds. A few payments listed in Schedules II and III are excluded.

(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;

(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 contributions; 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);

(d) Schedule III (Table: Sl. No. 11).