Section 16 : Standard Deduction, Entertainment Allowance & Professional Tax Deduction

Before FY 2018-19, Standard Deduction comprised of deductions as Transport Allowance (₹19,200) and Medical Allowance (₹15,000) but for FY 2018-19 it was replaced with a Standard Deduction of ₹40,000 and will be ₹50,000 from FY 2019-20 onwards.

Section 16 is made up of Standard Deduction(Section16(ia)), Entertainment Allowance(Section 16(ii)) and Professional Tax Deduction(Section 16(iii))

Standard Deduction – A Boon for Middle Class Taxpayers

• As of FY 2018-19 the effective benefit was increased by ₹5800 and now FY 2019-20 onwards the effective benefit has been increased by ₹15,800
• For a taxpayer who has received pension from an ex employer, the pension is taxable under the head of Salaries – and here the standard deduction of up to ₹50,000 can be availed

Entertainment Allowance

Entertainment Allowance also referred to as sumptuary allowance is only provided to Government Employees. The deduction as Entertainment Allowance is minimum of the following –

1. Annual Amount Received
2. 20% of Basic Salary
3. ₹5,000

For non-government employees it is included as a part of taxable salary.

Professional Tax Deduction

Professional Tax is levied and collected by some state governments of India. States which collect Professional Tax are Punjab, West Bengal, Sikkim, Jharkhand, Tripura, Odisha, Madhya Pradesh, Gujarat, Kerala, Assam, Meghalaya, Tamil Nadu, Andhra Pradesh, Maharashtra, Telangana, Bihar and Karnataka.

Professional Tax is usually deducted by the employer and is eligible as a deduction in your Salary Income.

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