Deductions from Salary
As per section 14 of Income Tax Act, 1961, there are five heads of income.
- Salaries
- Income from house property
- Profits and gains of business or profession
- Capital gains
- Income from other sources
While computing income under the head Salary, the following deductions are available from Gross Salary under section 16.
Standard deduction [Section 16(ia)]
Rs. 50000/- OR the amount of salary whichever is less.
[Standard deduction had been introduced in place of transport allowance Rs. 19200/- (1600 per month) and medical reimbursement of Rs. 15,000 per annum].
example- Mr. Vinod gets from his employer basic salary Rs. 20000 per month, D.A Rs. 5000 per month, Transport allowance Rs. 1800 per month and HRA Rs. 1000 per month. Calculate deduction from gross salary.
basic salary =20000*12 =240000/-
DA = 5000*12 =60000
T.A = 1800*12 = 21600/-
HRA = 1000*12 =12000/-
Total Gross Salary =240000+60000+21600+12000 = 333600/-
Deduction will be 50000 OR 333600 whichever is less i.e., 50000/-
Note:-HRA is partly exempt u/s 10(13A) but in this example HRA has been included fully.
Entertainment allowance [Section 16(ii)]
Entertainment allowance received by employee from employer is fully taxable. Firstly, it is to be included in the salary. Only Government employees shall be eligible to get deduction.
- The least of the following amount shall be deductible:-
- One-fifth of his basic salary or
- Entertainment allowance received.
- Rs. 5000/-
- Note-actual amount spent by the employee towards entertainment is not relevant.
Professional tax [Section 16(iii)]
Professional tax [(tax on employment- (maximum Rs. 2500/-)] is levied by a State under Article 276 of the Constitution of India and if employer pays this tax on behalf of the employee, the amount paid is first included in salary then deduction is available on paid basis.