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X, an employee of the private company, gets Rs. 30,000 p.m. basic salary and entitled to Rs. 1,500 p.m. as entertainment allowance. What are the deductions u/s 16 (ii) from gross salary in respect of entertainment allowance?

X, an employee of the private company, gets Rs. 30,000 p.m. basic salary and entitled to Rs. 1,500 p.m. as entertainment allowance. What are the deductions u/s 16 (ii) from gross salary in respect of entertainment allowance? Correct Answer Nil

The correct answer is Nil

Key Points

Entertainment Allowance Under Section 16

  • The entertainment allowance is first included in the pay income before being deducted based on a few conditions.
  • The allowance must be an entertainment allowance specifically granted by an employer to the taxpayer.

Important Points Entertainment Allowance for a Government Employee:

For employees of the central government and state government, the deduction available is the least of the following:

  • 20% of basic salary
  • Rs 5000
  • Amount granted as entertainment allowance in the financial year

To determine the allowance, a taxpayer must ensure the following particulars are met:

  • ​Any other allowance, benefit from the employer, or perquisite received must be deducted from the salary. Essentially, the wage must be the gross amount earned before any extra benefits are taken into account.
  • Never consider the actual amount spent out of the entertainment allowance received from the employer. 

Entertainment Allowance for a Non Government Employee:

Non-government employees are not eligible for the entertainment allowance deduction.

The deduction is only available to employees of the federal or state governments. Furthermore, the deduction is not available to employees of municipal governments or statutory corporations.

Related Questions

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Statements :
I. Vasu's basic salary is Rs 100 more than Rajan's salary who also serves in Vasu's company.
II. Other allowances drawn by Rajan besides his basic salary are Rs 2000 per month which is Rs 50 less than Vasu's salary.
III. Rajan's basic salary is Rs 1550 per month.