Deduction From Salary

The Income Tax Act allows taxpayers to claim deductions from salary income, which is taxable under Income Tax Law. In this article, we look at deductions from the salary that are allowed under the Income Tax Act.

Standard Deduction under Section 16

With effect from the financial year 2019-20, taxpayers can claim a standard deduction of Rs. 50000 from the salary income, or the actual amount of income, whichever is less. The deduction of Rs. 50000 will also be available on the amount of pension income earned by the assessee. Taxpayers should note that the legislation does not permit the claiming of a loss under the head salaries. Hence, if the salary received is lesser than Rs.50000, the deduction allowed will also accordingly be restricted to the actual amount of salary.

Exemptions

Consequent to the introduction of the standard deduction, the following exemptions have been withdrawn:

A transport allowance of Rs. 1,600 per month for the purpose of computing between the place of residence and the place of duty. However, the transport allowance of Rs.3200 per month granted to an employee who is deaf and dumb or blind or orthopedically handicapped with the disability of lower extremities would continue to be exempt.
Any sum funded by an employer in respect of any amount actually incurred by the employee for obtaining hos or his family member's medical treatment either in any hospital, nursing home, clinic or otherwise up to a maximum of Rs. 15,000 in the previous year.

Entertainment Allowance

While calculating gross salary, entertainment allowance is first included. Then a standard deduction is allowed under Section 16(ii). However, entertainment allowance can be claimed only by Government employee up to a maximum of Rs.5000. Where the employee is in receipt of entertainment allowance, the amount so received shall first be included in the salary income and thereafter the following deduction shall be made: A deduction in respect of any allowance in the nature of an entertainment allowance specifically granted by an employer to the assessee who is in receipt of a salary from the Government, a sum equal to one-fifth of his salary (exclusive of any allowance, benefit or other perquisite) or five thousand rupees, whichever is less.

Professional Tax Paid

State Governments and Local Authorities are empowered to collect

professional taxes on professions, trades, callings and employment. The amount of professional tax collected does not exceed Rs.2500 per annum. Under Section 16(iii), a deduction from salary can be claimed by the taxpayer on account of professional tax paid. The deduction for professional tax will be allowed in the year in which the tax is actually paid by the employee. Professional tax due but not paid cannot be claimed as a Deduction From Salary. To file your income tax return in India, get in touch with an IndiaFilings Business Advisor.

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Frequently Asked Questions

Common questions about Deductions from Salary under Income Tax Act.

The Income Tax Act allows taxpayers to claim a standard deduction of Rs. 50,000 from their salary income or the actual amount of income, whichever is lower. This deduction is also applicable to pension income.

After the introduction of the standard deduction, the following exemptions have been withdrawn: a transport allowance of Rs. 1,600 per month for the purpose of commuting between residence and workplace, and any sum funded by an employer for an employee's medical treatment up to Rs. 15,000 per year.

Yes, entertainment allowance can still be claimed as a deduction, but only for government employees. The deduction is limited to one-fifth of the employee's salary (excluding any allowance, benefit or perquisite) or Rs. 5,000, whichever is less.

Yes, professional tax paid can be claimed as a deduction from salary under Section 16(iii) of the Income Tax Act. However, the deduction can only be claimed in the year in which the tax is actually paid by the employee.

The article does not mention any specific limit on the amount of professional tax that can be deducted from salary. However, it states that the professional tax collected by state governments and local authorities generally does not exceed Rs. 2,500 per annum.

No, the Income Tax Act does not permit claiming a loss under the head of salary income. If the salary received is less than Rs. 50,000, the deduction allowed will be restricted to the actual amount of salary.

The transport allowance of Rs. 3,200 per month granted to an employee who is deaf, dumb, blind, or orthopedically handicapped with a disability in the lower extremities, continues to be exempt from taxation.

Yes, the standard deduction of Rs. 50,000 or the actual amount of income, whichever is lower, is also applicable to pension income earned by the assessee.

No, the deductions claimed cannot exceed the actual salary received. If the salary received is less than Rs. 50,000, the deduction allowed will be restricted to the actual amount of salary.

The article does not specifically mention the requirement of filing an income tax return to claim these deductions. However, it is generally necessary to file an income tax return to claim deductions and avail of tax benefits under the Income Tax Act.