Deductions from Salary :

The income chargeable under the head ‘Salaries‘ is computed after making the following deductions:

(1) Entertainment allowance [Section 16(ii)]

(2) Professional tax [Section 16(iii)]

(1) Entertainment allowance – Entertainment allowance received is fully taxable and is first to be included in the salary and thereafter the following deduction is to be made: However, deduction in respect of entertainment allowance is available in case of Government employees. The amount of deduction will be lower of:

i. One-fifth of his basic salary or

ii. Rs 5,000 or

iii. Entertainment allowance received.

Amount actually spent by the employee towards entertainment out of the entertainment allowance received by him is not a relevant consideration at all.

(2) Professional tax on employment – Professional tax or taxes on employment levied by a State under Article 276 of the Constitution is allowed as deduction only when it is actually paid by the employee during the previous year.

If professional tax is reimbursed or directly paid by the employer on behalf of the employee, the amount so paid is first included as salary income and then allowed as a deduction under section 16.

Illustration
Mr. Goyal receives the following emoluments during the previous year ending 31.03.2016.

Basic pay	Rs 40,000
Dearness Allowance	Rs 15,000
Commission	Rs 10,000
Entertainment allowance	Rs 4,000
Medical expenses reimbursed	Rs 25,000
Professional tax paid	Rs 3,000 (Rs 2,000 was paid by his employer)

Mr. Goyal contributes Rs 5,000 towards recognized provident fund. He has no other income. Determine the income from salary for A.Y.2016-17, if Mr. Goyal is a State Government employee.

Particulars	Rs	Rs
Basic Salary Dearness Allowance Commission Entertainment Allowance received Employee‘s contribution to RPF [Note] Medical expenses reimburse Less: Exempt medical expenses Professional tax paid by the employer Gross Salary Less: Deductions under section 16 – under section 16(ii) Entertainment allowance being lower of : (a) Allowance received (b) One fifth of basic salary [1/5 × 40,000] (c) Statutory amount – under section 16(iii) Professional tax paid Income from Salary	25,000 15,000	40,000 15,000 10,000 4,000 –   10,000 2,000
	4,000 8,000 5,000
		81,000       4,000 3,000
		74,000

Note: Employee‘s contribution to RPF is not taxable. It is eligible for deduction under section 80C.