Page 183 - DCOM301_INCOME_TAX_LAWS_I

Income Tax Laws – I

Notes Now minimum of the three amounts shall be exempt from tax:
1. Actual HRA received 24,000
2. Rent Paid minus 10% of salary ( 24,000 – 6480) 17,520
3. 50% of Salary 32,400

Therefore ` 17,520 shall be HRA exempt and the balance 6480 shall be included in total gross
salary.
2. Entertainment Allowance (EA): In case of Entertainment allowance an assessee will not
get any exemption but would be eligible for deduction under section 16(ii) from gross
salary. The deduction is allowed to government employees only; Non- Government
employees will not be eligible for this deduction. The entire amount of entertainment
allowance will be added to gross salary.

The minimum of the following shall be available as deduction in case of Government
employees:
(a) Actual amount of entertainment allowance received during the year

(b) 20% of his salary exclusive of any allowance, benefit or other perquisites.
(c) ` 5,000.

!

Caution In order to determine amount of entertainment allowance deductible from salary,
the following points need consideration:
For this purpose “salary” excludes any allowance, benefit or other perquisites.

Amount actually expended towards entertainment (out of entertainment allowance
received) is not taken into consideration.
In the case of a non-Governmental employee (including employees of statutory
corporation and local authority), entertainment allowances is not deductible, and
are completely chargeable to tax.

Example: Ram who is an employee of AP government gets a salary of ` 5,00,000 per
annum. He gets a sum of ` 15,000 annually as entertainment allowance. The Actual expense
incurred by him on entertainment is ` 12,000.
Solution:
In this case as Ram is a government employee, he is exempted from EA. Such exemption is
calculated as under.
The least of the following is exempted:
1. Actual amount of entertainment allowance received during the year 15,000

2. 20% of his salary (20% of 5,00,000) 1,00,000
3. The amount of 5,000
Therefore in the above case the minimum out of the above three is ` 5,000 and u/s 16(ii) this
amount will be the exempted amount of EA.

178 LOVELY PROFESSIONAL UNIVERSITY