Permissible deductions from salary income

The income chargeable under the head “SALARIES” shall be computed after making the following deductions from gross salary as per section 16.

1. Deduction for Entertainment Allowance [sec.16(ii)]:

Entertainment Allowance is not eligible for exemption but it only qualifies for deduction. Therefore, if Entertainment Allowance is first included in gross salary and then deduction is allowed under section 16(ii). This deduction is available only in the case of government employees and not in the case of other employees. The deduction allowable in the case of government employees is to the extent of the least of the following:-

1. Rs. 5000 : Or
2. 1/5th of salary : Or
3. Actual Entertainment Allowance received for the previous year.
Salary for the purpose of Entertainment Allowance deduction means only basic salary and excludes all allowances benefits and perquisites. Even dearness allowance should not be included though it may be provided in the term of employment.

2. Deduction for profession tax [sec. 16 ( iii ) ]:

Profession tax deduction is allowed in respect of any sum paid by the assesses on account of a tax on employment within the meaning of clause ( 2 ) of article 276 of the constitution of India, leviable by or under any law. In case, if the profession tax is paid by the employer on behalf of the employee, the amount so paid should be included in gross salary as a perquisite and then deduction under section 16 ( iii ) can be claimed.