Microlesson · 5-min read

Deductions under Section 16

## Deductions u/s 16 from Gross Salary

Three deductions are available from gross salary:

### (a) Standard Deduction

### (b) Entertainment Allowance [Section 16(ii)]

Employee Type	Treatment
Government Employee	First include in gross salary; then deduction = least of: ₹ 5,000 / 1/5 of basic salary / actual entertainment allowance
Other Employee	Fully taxable; no deduction allowed

### (c) Professional Tax / Tax on Employment [Section 16(iii)]

Situation	Treatment
Paid by employer	First include the amount as perquisite in gross salary, then claim deduction
Paid by employee	Deduct directly from gross salary

Only amount actually paid during the previous year is deductible (cash basis).

Worked example

### Example 1

Example: Mr. G (Govt employee) has Basic ₹ 4,00,000 and Entertainment Allowance ₹ 12,000.

Gross salary includes ₹ 12,000.

Deduction = Least of: ₹ 5,000 / (1/5 × 4,00,000 = ₹ 80,000) / ₹ 12,000 = ₹ 5,000

Net = 4,12,000 − 5,000 − 50,000 (std ded) − PT (if any).

Claiming entertainment allowance deduction for private-sector employees — only Govt employees qualify.
Using gross salary instead of basic salary for the 1/5 calculation of entertainment allowance.
Claiming professional tax on accrual — only paid amount is deductible.
Forgetting that under the new regime (115BAC), entertainment allowance & professional tax deductions are NOT available.

Reference:

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