Page 210 - DCOM301_INCOME_TAX_LAWS_I

Unit 7: Income under the Head Salaries

2. Entertainment allowance: Where the employee is in receipt of entertainment allowance, Notes
the amount so received shall first be included in the salary income and thereafter the
following deduction shall be made - Section 16(ii):
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.

W.e.f. April 1, 2002 entertainment allowance will be allowed in computing income from
salary only in case of employees of the Government and will cease to be allowable for
persons other than those employed in Government i.e. entertainment allowance deduction
will not be allowed to other employees.

Notes For this purpose ‘Salary’ excludes any allowance, benefit or other perquisites:
Where an employee, not entitled to claim deduction under this clause, spends some money
on the entertainment of customers of the concern, the amount so spent cannot be deducted
from the salary income. The condition makes exemption well-nigh impossible for the
employees of private sector. For them, the better course would be to get the entertainment
expenses reimbursed.

3. Tax on employment or Professional Tax: From the assessment year 1990–91, deduction
shall be allowed in respect of any sum paid by the assessee on account of a tax on
employment within the meaning of clause (2) of article 276 of the Constitution, leviable
by a State under any law passed by its legislature.

Where Professional or Employment tax is paid by the employer on behalf of the employee, it
will first be included in his gross salary as a perquisite, being a monetary obligation of the
employee discharged by the employer. Thereafter, a deduction on account of such professional
tax shall be allowed to the employee from his gross salary. Professional tax due but not paid
shall not be allowed as deduction.

!
Caution Incomes exempt from tax and not includible in ‘Salary’
The following items are exempt from tax, subject to the limits applicable for each:

1. Leave Travel Allowance [Section 10(5)];
2. Remuneration of a person who is not a citizen of India [Section 10(6)];
3. Allowances payable outside India [Section 10(7)];
4. Remuneration of an employee working under the Co-operative Technical Assistance
Programme [Section 10(8)];
5. Death-cum-retirement gratuity [Section 10(10)];
6. Amount received in commutation of Pension [Section 10(10A)];
7. Encashment of earned leave [Section 10(10AA)];

8. Retrenchment compensation [Section 10(10B)];
9. Payment received from Statutory Provident Fund [Section 10(11)];
10. Payment received from a recognised Provident Fund [Section 10(12)];

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