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-

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
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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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