Deductions from Salary
The Income-tax Act allows three deductions under Section 16 for salary income:
- Standard Deduction
- Deduction for Entertainment Allowance
- Deduction for Professional Tax
Standard Deduction [Section 16(ia)]
- Available to all employees, including retirees receiving pension.
- Deduction amount:
- 50,000 (for the regular tax regime).
- 75,000 (for the new tax regime under Section 115BAC.
- No documentation required to claim this deduction.
Deduction for Entertainment Allowance [Section 16(ii)]
- Applicable only to Central and State Government employees.
- Deduction is the lower of:
- Actual entertainment allowance received.
- 20% of basic salary (excluding allowances, benefits, and perquisites).
- 5,000.
Deduction for Professional Tax [Section 16(iii)]
- Deductible if paid by the employee during the year (even in advance).
- If paid by the employer without deducting from salary:
- Amount is treated as a taxable perquisite.
- Deduction is then allowed from gross salary.