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Normally for allowances, the amount exempt is mentioned. However for entertainment allowance, deduction amount is provided in Income tax and not the exemption amount.

The total amount of Entertainment Allowance is first included in Gross Salary and then deduction is provided

 

Maximum deduction is lower of the following

  • Actual amount received
  • 20% of basic salary
  • 5000 

However, this deduction is provided only for Government employees. For Non Government employees it is fully taxable

Note :- Entertainment  allowance is also called sumptuary allowance  

 

Question 1            

Basic salary  Rs 20000 per month

Dearness allowance (DA) Rs 10000 per month

Entertainment allowance   Rs 5000 per month  

Calculate income from salary assuming employee is a Government Employee

-a-

ParticularsAmt. readExemptTaxable
Basic Salary2400000240000
DA1200000120000
Entertainment Alllwance60000060000
Total (Gross Taxable Salary)4200000420000
    
Less Deduction   
    (1) Entertainment allowance     
         a – Actual amount received   60000
         b − 20% of basic salary          –             (240000x20 %) 48000
         c − Rs.5000                   5000
    

Deduction u/s 16 (ii) for Entertainment Allowance

 Lower of a, b, c

  5000
    
    
Income from salary = 420000 – 5000415000
    

-ea-

 

Question.2   

Solve Question 1 assuming it a non government employee  

-a-

Entertanment Allowance will be included in Gross Taxable Salary

No deduction for entertainment allowance in this case

ParticularsAmt. readExemptTaxable
Basic Salary2400000240000
DA1200000120000
Entertainment Alllwance60000060000
Total (Gross Taxable Salary)4200000420000
    
Less deduction   
    (1) Entertainment allowance     
         a – Actual amount received   0
         b − 20% of basic salary          –               0
         c − Rs.5000                   0
    
Deduction u/s 16 (ii) is Lower of a, b, c   0
    
    
Income from salary = 420000 – 5000420000

 -ea-

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CA Maninder Singh
CA Maninder Singh is a Chartered Accountant for the past 6 years. He provides courses for Practical Accounts, Taxation and Efiling at teachoo.com.
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