​Deductions from Salary

Income-tax Act allows three deductions from the salary income, i.e., Standard Deduction, Deduction for Entertainment Allowance, and Deduction for Professional Tax. Standard Deduction is allowed to every employee whose income is taxable under the head salary. While the other two deductions are allowed subject to certain conditions.

Standard Deduction

This deduction is available to all employees drawing salary income, including retired employees drawing pension income. The Standard Deduction is absolute and unconditional. The employee does not require to furnish any supporting evidence to claim this deduction. The deduction is the same for all employees with a ceiling of Rs. 50,000, irrespective of the salary drawn.

Note: A higher amount of standard deduction of Rs. 75,000 shall be available to employee if the income-tax is computed under section 115BAC(1A)(ii), i.e. new tax regime.

Entertainment Allowance

Entertainment allowance received by an employee is a taxable allowance. If such entertainment allowance is received by a Government employee, the deduction is allowed to him while computing the taxable income under the head salary.

No deduction is allowed under this provision to a taxpayer who is not an employee of any Central or State Government.

The amount of deduction allowable to the Govt. employee for the Entertainment Allowance shall be lower of the following:

• Actual amount of entertainment allowance received during the previous year
• 20% of salary exclusive of any allowance, benefit, or other perquisite
• Rs. 5,000

Professional tax

Professional tax paid by the employee, by way of deduction from his salary, is allowed as a deduction from the taxable salary income. Even if paid in advance, the professional tax paid during the year is deductible from the salary income.

If the employer pays the professional tax out of his own pocket, without deducting it from the employee's salary, then it shall be first included in the employee's income as perquisite. After that, a deduction on such professional tax is allowed from gross salary.