## Deductions from Salary [Section 16]

Three deductions are available against gross salary.

### 1. Standard Deduction [Section 16(ia)]

Regime	Deduction
Optional tax regime	₹50,000 or amount of salary, whichever is lower
Default tax regime	₹75,000 or amount of salary, whichever is lower

### 2. Entertainment Allowance [Section 16(ii)]

Fully taxable, but government employees get a deduction of the least of:

1/5th (20%) of basic salary,
₹5,000, or
Actual entertainment allowance received.

> Available only if the employee opts for the Optional tax regime.

### 3. Professional Tax [Section 16(iii)]

Professional tax paid by the employee is deductible (only under the Optional regime).
If the employer pays/reimburses it: first include it in salary income, then allow it as a deduction under Section 16.

Worked example

### Example 1

Entertainment allowance (govt. employee, Optional regime): Basic salary ₹3,00,000; entertainment allowance received ₹8,000.

Least of: 1/5 × 3,00,000 = ₹60,000; ₹5,000; ₹8,000 → Deduction = ₹5,000.

### Example 2

Professional tax paid by employer: Employer pays ₹2,500 PT on the employee's behalf.

Step 1: add ₹2,500 to salary. Step 2: allow ₹2,500 deduction u/s 16(iii) (Optional regime). Net effect on salary = nil, but it routes through both steps.

⚠️ Common exam mistakes

Allowing the entertainment allowance deduction to non-government employees — it is for government employees only.
Claiming entertainment allowance / professional tax deductions under the Default regime — both are available only under the Optional regime.
Forgetting to first include employer-paid professional tax in salary before deducting it.
Using the wrong standard deduction amount for the chosen regime (₹50,000 Optional vs ₹75,000 Default).

Reference: Section 16(ia), 16(ii), 16(iii) — Income-tax Act, 1961

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