Income Tax Deduction U/s 16 of the Income-tax Act, 1961
Section 16 of the Income-tax Act, 1961 provides deduction from taxable income under the heading ‘Salary’. Therefore, It offers discounts for standard deductions, entertainment allowances and professional taxes. Through this deduction, a salaried taxpayer can reduce his taxable salary income applicable to tax.
Furthermore, with the recent revision of the standard deduction, the advantage of this section has been extended to a greater extent. Also, there is no hassle of paying bills for travel and treatment which makes it quite easy to claim.
In this article, we will cover each cut under section 16 and with diagrams of calculations.
Standard deduction from salary under section 16 (ia)
In other words, The standard deduction is allowed under section 16(ia) of the Income-tax Act. The standard deduction replaces the transport allowance of Rs 19,200 and the medical allowance of Rs 15,000. Budget – In 2018.
Budget – In 2018, provision has been made to deduct Rs 40,000 instead of transport allowance and medical compensation. However, A taxpayer does not have to submit any bill or proof of expenditure for this deduction of Rs. 40,000.
It offers a flat deduction of Rs 40,000.
Subsequently in the Interim Budget 2019, the deduction amount of Rs 40,000 was increased to Rs 50,000. So the deduction for FY 2018-19 was Rs 40,000 and F.Y will deduct Rs 50,000 from 2019-20.
For instance, A taxpayer’s pension received from his former employer will be taxed under the heading ‘salary’. Since the pension received is taxed under the heading of ‘salary’, This Deduction also can be availed by the pensioners as per the CBDT Rules.
How to calculate the amount of deduction U/s 10(1a)?
Which is less
Note that the standard deduction is not related to cutting with 80C or any other section of Chapter VIA.
Entertainment allowance under section 16 (ii)
Entertainment allowance is first included in the salary income and then a deduction is paid on the basis of several criteria. The allowance must be an allowance specifically paid by an employer to the taxpayer as an entertainment allowance.
Entertainment allowance for a government employee
Only For Government employees, the deduction available is the lowest of the following:
20% of basic salary
Amount paid as entertainment allowance in the financial year
To determine the allowance, a taxpayer must ensure that the following details are met:
Salary must not include any other allowance, benefits or benefits received from the employer. Basically, the salary should be the total amount received without considering any other benefits.
Never consider the actual amount spent from the entertainment allowance received from the employer.
Entertainment allowance for a private employee
Entertainment allowances are not available for private employees. Only government employees are eligible for deduction. In addition, employees of local authorities and statutory corporations are not eligible for deduction.
Above all, Occupational tax or tax on employment under section 16 (iii)
Deduction for tax on employment is permitted under section 16iii of the Income-tax Act. The amount that a taxpayer pays for employment tax or occupational tax is allowed as a deduction under section 16.
The following points must be kept in mind when calculating deductions against professional tax:
The taxpayer has to claim deduction only in the financial year in which the professional tax is paid to the government
Taxes paid by the employer on behalf of the employee are also eligible for deduction. In addition, Here, the amount paid by the employer as professional tax will first be included as a prerequisite for the total salary. Subsequent to the same amount of deduction will be allowed under section 16
After that, Under Section 16 of the Income-tax Act, there is no upper or lower limit on deductions. The deduction depends only on the actual amount of professional tax. However, no state government can levy more than Rs 2,500 per annum as professional tax. Similarly, Only payable tax-deductible and not professional tax delay or non-payment interest or delay fee.