## Standard Format – Computation of Income from Salary

This is the master template to be used in every salary problem. Build the answer line-by-line; missing items will then stand out.

Particulars	₹
Basic Salary	XX
Bonus and Commission	XX
Advance Salary and Arrears of Salary	XX
Allowances (Taxable portion only)	XX
Gratuity (Taxable portion)	XX
Pension (Uncommuted + Taxable Commuted)	XX
Leave Salary (Taxable portion)	XX
Compensation (Taxable portion)	XX
Provident Fund (Taxable contributions/interest)	XX
Perquisites (Taxable value)	XX
Gross Salary	XX
Less: Deductions u/s 16
• Entertainment Allowance (Govt. employees only)	(XX)
• Professional Tax (actually paid)	(XX)
• Standard Deduction	(XX)
Taxable Income from Salary	XX

### Deductions u/s 16 – Quick Notes

Standard Deduction – flat amount allowed to every salaried employee/pensioner irrespective of expenditure.
Entertainment Allowance [16(ii)] – deduction available only to Government employees, restricted to the lower of (a) actual EA received, (b) 1/5 of Basic, (c) ₹5,000.
Professional Tax [16(iii)] – deduction only when actually paid; if employer pays it on behalf of employee, first add it as a perquisite, then claim deduction.

⚠️ Common exam mistakes

Forgetting Standard Deduction – it is allowed to every salaried employee/pensioner automatically.
Claiming Entertainment Allowance deduction for non-government employees – not allowed.
Claiming PT as deduction when only 'PT due' is mentioned – deduction is available only when PT is actually paid.
Mixing the order – exemptions (HRA, LTC, gratuity etc.) come first while computing 'Gross Salary'; deductions u/s 16 are applied only on the gross.

Bare-Act text Section 16 · Income-tax Act, 1961 · click to expand

Section 16 – The income chargeable under the head 'Salaries' shall be computed after making the following deductions, namely — (ia) Standard deduction of fifty thousand rupees or the amount of salary, whichever is less; (ii) a deduction in respect of any allowance in the nature of an entertainment allowance specifically granted by an employer to the assessee who is in receipt of a salary from the Government — to the extent of one-fifth of his salary (exclusive of any allowance, benefit or other perquisite) or five thousand rupees, whichever is less; (iii) a deduction of any sum paid by the assessee on account of a tax on employment within the meaning of clause (2) of article 276 of the Constitution.

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Computation Format of Taxable Salary

Worked example

⚠️ Common exam mistakes