The Income Tax Bill, 2025 introduces substantive restructuring ...

Income Tax Bill Revamps Profit in Lieu of Salary Rules Under Section 17(3) with New Three-Part Framework

February 28, 2025

Notes     Bill

The Income Tax Bill, 2025 introduces substantive restructuring of "profits in lieu of salary" provisions through Clause 18, replacing Section 17(3) of Income-tax Act, 1961. The revised framework bifurcates compensation treatments for employment termination and modification of terms, while maintaining coverage for pre and post-employment payments. Key changes include a streamlined three-part structure for payments from employers and funds, introduction of schedule-based exclusions replacing complex Section 10 cross-references, and clearer categorization of Keyman insurance policy payments. The amendments provide enhanced clarity for both taxpayers and employers through simplified reference systems and explicit distinction between taxable and non-taxable components, while preserving the fundamental scope of profit in lieu of salary taxation.

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