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

• 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-

 Particulars Amt. read Exempt Taxable Basic Salary 240000 0 240000 DA 120000 0 120000 Entertainment Alllwance 60000 0 60000 Total (Gross Taxable Salary) 420000 0 420000 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 5 000 Income from salary = 420000 – 5000 415000

-ea-

Question.2

Solve Question 1 assuming it a non government employe e

-a-

Entertanment Allowance will be included in Gross Taxable Salary

No deduction for entertainment allowance in this case

 Particulars Amt. read Exempt Taxable Basic Salary 240000 0 240000 DA 120000 0 120000 Entertainment Alllwance 60000 0 60000 Total (Gross Taxable Salary) 420000 0 420000 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 – 5000 420000

-ea-

1. Income Tax
2. Income from Salaries
Income from Salaries