The section is a definition, not a charge. For the purposes of the Part dealing with salaries, "salary" includes twelve items: wages under clause (a); any annuity or pension under clause (b); any gratuity under clause (c); any fees or commission under clause (d); perquisites under clause (e); profits in lieu of, or in addition to, any salary or wages under clause (f); any advance of salary under clause (g); and any payment received by an employee in respect of any period of leave not availed of by him under clause (h).
Four of the clauses bring in amounts that are not paid out to the employee at all. Clause (i) includes the annual accretion to the balance at the credit of an employee participating in a recognised provident fund, but only to the extent it is chargeable to tax as per paragraph 6 of Part A of Schedule XI. Clause (j) includes the aggregate of all sums comprised in the transferred balance referred to in paragraph 11(2) of Part A of Schedule XI, again only to the extent chargeable under sub-paragraphs (4) and (5) of that paragraph. Clause (k) includes the contribution made by the Central Government or any other employer in any tax year to an employee's account under a pension scheme referred to in section 124. Clause (l) includes the contribution made by the Central Government in any tax year to the Agniveer Corpus Fund account of an individual enrolled in the Agnipath Scheme referred to in section 125.
Why it is there
The word "salary" in ordinary use means periodic pay for work done, which would leave out pensions, gratuity, perquisites, leave encashment and employer contributions to retirement accounts. The section gathers all of them under one head so that the computation provisions of the Part operate on the whole employment relationship rather than on the pay slip alone. Clauses (i) and (j) are drafted as partial inclusions because the amounts they cover are chargeable only to the extent Schedule XI makes them so.
Who it applies to
An employee, in computing income under the head salaries
A pensioner or annuitant receiving an annuity or pension
An employee participating in a recognised provident fund
An employee in whose account the Central Government or any other employer contributes under a section 124 pension scheme
An individual enrolled in the Agnipath Scheme with an Agniveer Corpus Fund account
An employer identifying what it must treat as salary
What this means in practice
The list opens with "includes", so it extends the ordinary meaning rather than exhausting it — a receipt from an employer that fits none of the twelve clauses can still be salary. Two clauses tax amounts the employee never touches in the year: the annual accretion to a recognised provident fund balance under clause (i) and the government or employer contribution under clauses (k) and (l), all of which are salary of the tax year of accretion or contribution. But clauses (i) and (j) are limited by their own words to the extent chargeable under the identified paragraphs of Part A of Schedule XI, so the whole accretion or transferred balance is not automatically salary.
An example
Illustrative only, and invented for this page. The figures are chosen to show the rule biting, not taken from any real matter.
An individual draws a monthly wage, takes an advance of two months' pay in March, and is paid for leave he did not take during the year. All three are salary — the wage under clause (a), the advance under clause (g) and the leave payment under clause (h) — so the advance is taxed in the year of receipt even though the work it relates to falls in the next year. If his recognised provident fund balance also grows by an accretion during the year, only so much of that accretion as paragraph 6 of Part A of Schedule XI makes chargeable is added under clause (i).
Where you meet this section
In the salary figures an employer reports and in any scrutiny of whether a particular employer payment belongs under this head. Disputes most often turn on clauses (e), (f) and (i) — whether an item is a perquisite, whether a terminal payment is a profit in lieu of salary, and how much of a provident fund accretion Schedule XI makes chargeable.
The words themselves
"salary" includes—
Section 16, Income-tax Act, 2025.
the annual accretion to the balance at the credit of an employee participating in a recognised provident fund, to the extent to which it is chargeable to tax as per paragraph 6 of Part A of Schedule XI
Section 16(i), Income-tax Act, 2025.
any payment received by an employee in respect of any period of leave not availed of by him
Section 16(h), Income-tax Act, 2025.
What people get wrong
Reading the twelve clauses as an exhaustive list. The section says salary "includes" them, so it does not shut out a receipt that falls outside.
Bringing the whole annual accretion to a recognised provident fund into salary. Clause (i) includes it only to the extent chargeable as per paragraph 6 of Part A of Schedule XI.
Deferring an advance of salary to the year it relates to. Clause (g) makes any advance of salary itself salary.
Overlooking employer and Government contributions. Clause (k) brings in the contribution to a section 124 pension scheme account and clause (l) the Central Government's contribution to an Agniveer Corpus Fund account under section 125, in the tax year of contribution.
Treating a transferred provident fund balance as wholly outside salary. Clause (j) includes the sums comprised in the transferred balance under paragraph 11(2) of Part A of Schedule XI, to the extent sub-paragraphs (4) and (5) make them chargeable.
What this replaced
The correspondence is the Income Tax Department’s own, from its comparison utility for the 1961 and 2025 Acts. A renumbering is the easy half; whether the words changed is the half that decides cases.
17 - “Salary”, “perquisite” and “profits in lieu of salary” defined
A circular binds the department, not you and not a court. Every one below was written under the 1961 Act; it reaches this section because the department’s own concordance carries the provision it names to this one.
Circular No. 3/2025 — Income tax deduction from salaries during the financial year 2024 25 under section 192 of the income tax act 1961 2025-02-20
Circular No. 2/2010 — Section 115WM of the Income-tax Act, 1961 - Fringe Benefit Tax - Chapter XII-H not to apply after a certain date - Adjustment of ‘ 2010-01-29
Circular No. 8/2005 — CIRCULAR FINANCE ACT, 2005 - FBT Finance Act, 2005 - Explanatory Notes on the Provisions relating to Fringe Benefit Tax 2005-08-29
Circular No. 761 — 1184. Clarifications regarding use of Form No. 16 for pensioners where pensioners are drawing their pensions through banks 1998-01-13
Circular No. 710 — 202. Taxability of the perquisite on shares issued to employees at less than market price 1995-07-24
Circular No. 701 — 18. Taxability of allowances received by persons having income under the head ‘Salaries’ 1995-03-23
Circular No. 644 — 371. Whether provision of food or beverages in places other than place of work in respect of low-paid employees can be treated as 1993-03-15
Circular No. 451 — Clarifications on issues relating to effect of filing higher estimates of income for advance tax purposes on assessments for earl 1986-02-17
Circular No. 442 — 1512. Appointment of estate duty valuers for different categories of assets and scale of charges for their remuneration - Notifica 1985-12-10
Circular No. 431 — 624. Relief in case of encashment of leave salary by an employee while in service - Whether admissible 1985-09-12
Circular No. 331 — Section 89 l Relief When Salary ETC., Is Paid in Arrears or in Advance 1982-03-22
Circular No. 293 — 181. Pension received by erstwhile officials of United Nations - Whether exempt from tax in view of section 2 of UN (Privileges an 1981-02-10
Circular No. 196 — 946. Whether tax is not to be deducted at source from conveyance allowance where disbursing authority is satisfied that conveyance 1976-03-31
Circular No. 189 — 276. Development rebate reserve in the case of industrial undertakings in which there is Government participation and where there 1976-01-30
Circular No. 153 — Section 2(38) l Recognized Provident Fund 1974-11-30
Circular No. 130 — Section 17(2)/RULE 3 l Perquisite and ITS Valuation 1974-03-16
Circular No. 122 — Rule 3(g) of Income-tax Rules - Valuation of perquisibte on account of services of household servants 1973-10-19
Circular No. 32 — Limit on allowance in respect of benefit, amenity or perquisite under clause (c)(iii)/clause (a)(v) - Reimbursement of certain exp 1969-10-29
A notification is made under a power the Act gives and, within that power, is law. These too were made under the 1961 Act and are placed here by the department’s concordance.
Notification No. 94 — Income-tax (Thirteenth Amendment) Rules, 2009 - Substitution of rule 3 and Insertion of rule 40F 2009-12-18
Notification No. 70 — Amendment in Electronic Furnishing of Return of Income Scheme, 2007 2009-09-22
Notification No. 271 — Income-tax (Fourteenth Amendment) Rules, 2007 - Amendments in rule 3 - Valuation of perquisites 2007-11-07
Notification No. 003 — S.O. (E).-In exercise of the powers conferred by section 295 read with rule 3 of Part A of the Fourth Schedule to the Income-tax A 2007-01-15
Notification No. 68 — Amendment of the Income-tax Rules under section 17 of the Income-tax Act, 1961 2005-02-28
Notification No. 291 — Amendment of the Income-tax Rules under section 3 of the Income-tax Act, 1961 2004-12-07
Read this before you rely on it. Every decision below was decided under the Income-tax Act, 1961. It appears here because it is tagged to a 1961 provision that the department’s own mapping carries to section 16. That is an inference we have drawn, not a holding on the new section: where the words changed in the move, the reasoning may not survive. Treat this as the place to start looking, not as authority on the 2025 Act.
V.M. Salgaocar & Bros P Ltd v CITSupreme CourtHelps taxpayertagged s.17(2) For old years, was an interest-free loan from my employer taxable as a perquisite?
Manjeet Singh Chawla v Dy CIT (TDS)High CourtHelps taxpayertagged s.17(2) If the payment for the fall in option value is not salary, is it capital gains?
Nishithkumar Mukeshkumar Mehta v Dy CITHigh CourtHelps departmenttagged s.17(2) Is compensation for the fall in value of stock options taxable as salary if I keep the options?
Ravi Kumar Sinha v CITHigh CourtHelps taxpayertagged s.17(2) I was allotted shares under an employee stock purchase scheme but they carry a lock-in and I cannot sell them. Can the perquisite be valued at the…
Sanjay Baweja v Dy CITHigh CourtHelps taxpayertagged s.17(2)(vi) My employer paid me for the fall in value of options I never exercised. Is that a perquisite?
ACIT v Subhodh MenonITATHelps taxpayertagged s.17 I subscribed for less than my share of a rights issue. Can the AO still tax the discount?
Pramod Kumar Jain v DCITITATHelps taxpayertagged s.17(2)(vi) The company bought back my vested options before I exercised them. Salary or capital gains?
Rajesh R Hemrajani v ITOITATHelps taxpayertagged s.17(2)(vi) When I sell esop shares, is my cost of acquisition under section 49(2AA) the fair market value used for the perquisite even if that perquisite was…
Free calculators on VittSphere ONE for the very provision this page is about. They open in the same window.
Salary and CTC calculator— what a cost-to-company figure becomes in the hand after the standard deduction and the two regimes.
What this page does not tell you. It does not reproduce the section. Everything above was written from the section’s own text as the Income Tax Department publishes it — the text is here, and nothing here is advice on your facts. Where a figure matters, read the sub-section it comes from.
