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What is an Entertainment Allowance?

by Varun Advani | 22 October 2012

 

The provisions regarding the entertainment allowance and its deduction from salary are discussed below –

Entertainment allowance as per Section 16(ii) of the Income Tax Act is first included in salary income under the head “Salaries” and thereafter a deduction is given on the basis enumerated in the following points:

  • In the case of a Government employee (i.e., Central Government or a State Government employee), the least of the following is deductible:

  1. Rs. 5,000

  2. 20 percent of basic salary ; or

  3. Amount of entertainment allowance granted during the previous year.

In order to determine amount of entertainment allowance deductible from salary, the following points need consideration:

1. For this purpose “salary” excludes any allowance, benefit or other perquisites.

2. 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.

Hope this explanation helps clarify any doubts related to entertainment allowance and tax deductions.

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