Section 17 of the Income-tax Act, 2025 — Salary, Perquisites and Profits in Lieu of Salary

In plain language

What Section 17 actually says

Section 17 of the Income-tax Act, 2025 is the definition section for the head "Salaries". It tells you exactly what the law treats as salary, what counts as a perquisite (a "perk" or benefit-in-kind), and what counts as profits in lieu of salary. It is the successor to Section 17 of the old Income-tax Act, 1961, and applies from the tax year beginning 1 April 2026.

• Salary — includes basic pay, wages, dearness allowance, fees, commission, bonus, gratuity, pension, leave encashment, advance salary, and the taxable part of provident fund and retirement contributions.
• Perquisites — non-cash benefits or amenities your employer gives you over and above your salary: rent-free or concessional accommodation, a company car, interest-free loans, ESOPs, free education, club and utility bills paid by the employer, and specified medical benefits.
• Profits in lieu of salary — lump-sums connected to employment that are not regular pay, such as retrenchment/termination compensation, amounts received before joining or after leaving a job, and keyman insurance proceeds.

Who it applies to

Section 17 applies to every salaried person — employees in the private sector, government staff, directors who draw a salary, and pensioners. The definitions are inclusive, not exhaustive, meaning the department can tax an employment benefit even if it is not spelled out word-for-word in the list.

Perquisites: the big 2025-26 changes

The substance of what is a perquisite is unchanged, but the valuation rules moved from old Rule 3 to Rule 15 of the Income-tax Rules, and Parliament replaced several fixed rupee limits in the section with the words "such amount as may be prescribed" — so the thresholds now sit in the Rules and can be revised without amending the Act. The two headline threshold increases (notified in August 2025, effective from AY 2026-27) are:

• Employer-paid medical treatment in India and other listed perquisites stay tax-free where the employee's salary does not exceed ₹4,00,000 (raised from the old ₹50,000 "specified employee" line).
• Medical treatment abroad (including travel and stay) borne by the employer is tax-free where the employee's gross total income does not exceed ₹8,00,000 (raised from the earlier ₹2,00,000 travel cap).

Valuation of common perks was also refreshed: the free-meal limit is now ₹200 per meal (up from ₹50), and small company-car values were increased (roughly ₹5,000/month for engines up to 1.6 litres and ₹7,200/month above 1.6 litres, with an add-on for an employer-provided driver).

Specified vs non-specified employees

A key concept survives: non-monetary perquisites such as a car for personal use, free gas/electricity or a domestic servant are taxable in the hands of a "specified employee" — broadly a director, an employee with a substantial (20%+) interest in the company, or an employee whose income under "Salaries" exceeds the prescribed limit. Monetary perquisites (cash reimbursements) are taxable for everyone.

How it interacts with other sections

• Section 17 defines the income; the head "Salaries" is charged under the charging section and computed after the standard deduction allowed on salary.
• Rent-free accommodation, car and loan perks are valued using Rule 15.
• Gratuity, leave encashment and pension commutation exemptions apply before the balance is taxed as salary.
• ESOP perquisite value = fair market value on allotment minus the price you paid; the later sale is taxed separately as capital gains.

Practical implications

• Check Form 16 / new-format TDS certificate — perquisites appear as a separate line and are already added to your taxable salary by the employer.
• Employees earning up to ₹4 lakh salary get wider tax-free medical cover than before; higher earners should assume most cash perks are taxable.
• Company-car and free-meal perks are now available under both the old and new tax regimes, so the new-regime saver no longer automatically loses them.