Last updated: February 14th, 2020 1:16 PM

Deduction from Salary

The Income Tax Act allows taxpayers to claim deductions from salary income, which is taxable under Income Tax Law. In this article, we look at deductions from the salary that are allowed under the Income Tax Act.

Standard Deduction under Section 16 

With effect from the financial year 2019-20, taxpayers can claim a standard deduction of Rs. 50000 from the salary income, or the actual amount of income, whichever is less. The deduction of Rs. 50000 will also be available on the amount of pension income earned by the assessee. Taxpayers should note that the legislation does not permit the claiming of a loss under the head salaries. Hence, if the salary received is lesser than Rs.50000, the deduction allowed will also accordingly be restricted to the actual amount of salary.

Exemptions

Consequent to the introduction of the standard deduction, the following exemptions have been withdrawn:

• A transport allowance of Rs. 1,600 per month for the purpose of computing between the place of residence and the place of duty. However, the transport allowance of Rs.3200 per month granted to an employee who is deaf and dumb or blind or orthopedically handicapped with the disability of lower extremities would continue to be exempt.
• Any sum funded by an employer in respect of any amount actually incurred by the employee for obtaining hos or his family member's medical treatment either in any hospital, nursing home, clinic or otherwise up to a maximum of Rs. 15,000 in the previous year.

Entertainment Allowance

While calculating gross salary, entertainment allowance is first included. Then a standard deduction is allowed under Section 16(ii). However, entertainment allowance can be claimed only by Government employee up to a maximum of Rs.5000. Where the employee is in receipt of entertainment allowance, the amount so received shall first be included in the salary income and thereafter the following deduction shall be made: 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, a sum equal to one-fifth of his salary (exclusive of any allowance, benefit or other perquisite) or five thousand rupees, whichever is less.

Professional Tax Paid

State Governments and Local Authorities are empowered to collect professional taxes on professions, trades, callings and employment. The amount of professional tax collected does not exceed Rs.2500 per annum. Under Section 16(iii), a deduction from salary can be claimed by the taxpayer on account of professional tax paid. The deduction for professional tax will be allowed in the year in which the tax is actually paid by the employee. Professional tax due but not paid cannot be claimed as a deduction from salary. To file your income tax return in India, get in touch with an IndiaFilings Business Advisor.