The section 16 of the Income Tax Act offers provisions for certain deductions from the salary income. Under this provision, a taxpayer having an income that is chargeable under the ‘Salaries’ head should be allowed a deduction under section 16 of the Income Tax Act. Under section 16 below given deductions are permitted-
- Standard Deductions
- Entertainment Allowance
- Professional Tax
What is Standard Deduction under Section 16 (i)/(ia)?
It is a flat deduction that is allowed from the salary income. Standard deduction under section 16(ia) can be claimed for the lower amount between the following as a standard deduction from your total salary-
- ₹50,000 (AY 2020 onwards)
- Salary Amount, whichever is lower
- Transport Allowance
- Medical Allowance
Is There any Limit to Standard Deduction under section 16 (ia)?
The standard deduction amount cannot exceed ₹50,000. In case you receive your salary more than ₹50,000, you can deduct only this sum under section 16.
What is Entertainment Allowance under section 16 (ii)?
Deduction under section 16 (ii) or entertainment allowance is included under the head ‘Salary’ in the salary income and after that a deduction is allowed in the following paragraph-
In case of a government employee, the minimum deduction is taken into account for the following-
- 20% of the basic salary
- The allowance amount is granted during the last year
In case of non-government employee-
- The entertainment allowance is not deductible in this situation
What is Tax on Employment or Professional Tax under section 16 (iii)?
The tax on employment under section 16 (iii) is levied by some state in the article 276 of the Indian Constitution is granted as deducted. Under section 16 (iii) of the Income Tax Act, the state cannot charge more than ₹2,500 per year as a professional tax.
Section 16 allows the salaried individual to save taxes and ultimately lowering tax liability. Therefore, it is important to know the rules and regulations of the taxation system in India.
How can you claim standard deduction under section 16?
In most of the cases, the employer deducts the TDS as per your early salary. The amount that is issued by the employer is reflected in the Form 16. In case employer does not deduct TDS including the standard deduction, you can file the same while filing your Income Tax Return.
Section 16 of the Income Tax Act- FAQs
The amount of professional tax usually depends on the state in which you are employed. However, the maximum professional tax levied by the Income Tax Department cannot exceed ₹2500.
At present, there are no documents required to claim standard deduction under section 16 from your salary income.
No. It is mandatory to provide standard deduction while calculating tax, TDS deduction, and filing an income tax return.