Glossary · HR, Payroll & Labour Law
Section 17 of Income Tax Act
The section of the Income Tax Act that defines 'salary' income and lists the components that constitute taxable salary, including perquisites, profits in lieu, and allowances.
Section 17 defines salary to include: wages, fees, commissions, perquisites (Section 17(2)), profits in lieu of salary (Section 17(3)), and various allowances. Perquisites are classified as taxable perquisites (rent-free accommodation, car, loans below prescribed rate, etc.) and tax-free perquisites (medical up to ₹15,000, telephone, newspaper, etc.). Valuation of perquisites is prescribed by Rule 3 of the Income Tax Rules. Salary also includes employer's contribution to EPF, NPS, and insurance above specified limits.
Examples
A company providing rent-free accommodation to a director in Mumbai values the perquisite at 15% of salary, which becomes part of taxable salary under Section 17(2).