Deduction from Salary: Section 16 of Income Tax Act 1961

Deduction from Salary: Section 16 of Income Tax Act 1961

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Section 16 of Income Tax Act 1961 talks about deduction from salary to employees. Earlier there was transport allowance deduction of Rs 19200 and medical reimbursement of Rs 15000. Budget 2018 has replaced both transport allowance and medical reimbursement by standard deduction of Rs 40000.

Section 16(ia) of Income Tax Act 1961

The Indian Finance Minister in the Union Budget 2018, announced a standard deduction amounting to Rs 40,000 for salaried employees. This has replaced the existing transport allowance of Rs 19,200, and medical reimbursement of Rs 15,000.

From Financial Year 2018-19 standard deduction of Rs 40000 is allowable as deduction to salaried employee.

The main benefit of Budget 2018 is that the standard deduction is available at lower of Rs 40000 or salary received.

So if the salary of individual is less than Rs 40000 than whole of salary would be allowed as deduction.

Section 16(ii) of Income Tax Act 1961: Deduction of Entertainment allowance to Government employee

Government employee i.e. Central or State Government employee

Lower of the following is allowable as deduction:

  1. 5,000
  2. 20 percent of basic salary; or
  3. Amount of entertainment allowance granted during the previous year.


Section 16(iii) of Income Tax Act 1961: Deduction of Professional Tax

Professional tax on employment levied by state under article 276(2) of the Constitution is allowed as a deduction from the Salary income. Deduction of professional tax is allowed only if it is paid by salaried employee.

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