Section 16 provides a deduction from the income chargeable to tax under the head salaries. It offers deductions for the standard deduction, entertainment allowance, and professional tax.
With this deduction, a salaried employee who pays tax could lower the taxable salary income chargeable to tax.
Under this provision, a taxpayer who has the income that is charged under salaries should allow a deduction of Rs. 40,000 or the salary amount, whichever one is lesser for the computation of the taxable income. The representations received need clarification - such as whether a taxpayer, who gets a pension from the former employer, should be eligible for claiming the deductions.
A taxpayer's pension from the old employer is also taxable under the head of salaries. Any taxpayer who gets a pension from the former employer is entitled to claim the deduction that is the pension amount of Rs. 40,000, and also whichever is lesser according to Section 16, which has been updated since.
The Standard Deduction Under Section 16 is allowed under Section ia. It has been replaced by the transport allowance of Rs. 19,200 and the medical reimbursement of Rs. 15,000. In the 2018 budget, the finance minister introduced this.
It has provided a standard deduction of Rs. 40,000 in the place of the transport allowance and the medical reimbursement. The deduction of Rs. 40,000 will not need a taxpayer to give any bill or proof of the expenditure. It provides a flat deduction of Rs. 40,000.
Later, in the interim budget of the year 2019, the deduction amount of Rs. 40,000 had increased to Rs. 50,000. Therefore, it had become Rs. 50,000.
This standard deduction option is also available to pensioners. The clarification was issued by the CBDT and clarified the applicability of the standard deduction to pensioners. The pension that has been received by the taxpayer from the former employer would be chargeable to tax under the head of salaries.
Since the pension that is received has been taxed under the salaries head, the deduction would also be available to the pensioners under this section.
Following the inclusion of the entertainment allowance in pay income, a deduction is given based on a few factors. The benefit must be a payment made by the employer to the employee explicitly for entertainment purposes.
For the Government Employee
The least of the following deductions is available to central government and state government employees:
A taxpayer must make sure the following conditions are met in order to determine the allowance:
For Non-Government Employees
Non-government employees are not eligible for the entertainment allowance deduction. Only employees of the Central or State Government are qualified for the deduction. Additionally, employees of statutory businesses and local governments are ineligible for the deduction.
Section 16(iii) of the Income Tax Act permits the deduction for tax on employment. Under section 16, a taxpayer may deduct the amount paid on account of an employment tax or professional tax.
Here, Article 276(2) of the Constitution specifies the employment tax.
The following considerations must be made when computing professional tax deductions: