Standard Deduction U/s 16(ia) | Section 16 of the Income Tax Act 1961 provides for a
deduction from income charged to tax under the heading “salaries”. Provides deductions for
the standard deduction, leisure allowance, and occupational tax. Through this deduction, a
salaried taxpayer can reduce his or her taxable salary income.
Moreover,
with recent modifications to the standard deduction, the interest of this
section has been extended to a higher amount. Moreover, there is no hassle in
submitting bills for travel and medical treatment which makes it easy to claim
them.
Download and Preparation One by One Form 16 Part A&B
and Part B for the Financial Year 2021-22
In
this article, we'll cover each of the deductions in Section 16 along with
account-specific illustrations.
U/s 16 (IA) Salary Deduction of Rs. 50,000/-
The
standard deduction is allowed under Section 16(ia) of the Income Tax Act. Replace
the standard deduction for transportation allowance of Rs 19,200 and medical reimbursement for Rs 15,000. In Budget - Presented by Finance Minister Jaitley
for 2018.
Budget
- 2018 provided for a standard deduction of Rs 40,000 in lieu of transport
allowance and medical reimbursement. This deduction of Rs 40,000 does not
require the taxpayer to provide any invoice or proof of expenses. It provides for
a fixed discount of Rs 40,000.
Download and Preparation One by One Form 16 Part B for the Financial Year 2021-22
Later
in the 2019 Provisional Budget, the discount amount of Rs 40,000 was increased
to Rs 50,000. Hence, the discount for F.Y 2018-2019 was Rs 40,000 and from FY
2019-20 the discount would be Rs 50,000.
The
standard discount is also available for retirees. A clarification has been
issued by the Central Bank of
The
deduction amount available under Section 16 for the standard deduction is:
Salary
received
Or
50,000
rupees
Whichever
is less?
Download and Preparation at a time 50 Employees Form 16 Part B for the Financial Year 2021-22
Details
F.Y2018-19 F.Y2019-20
(Rs.)
From F.Y2019-20 From F.Y2020-21 (Rs.)
Base
salary + design allowance 800,000 800,000
Other
taxable benefits 100,000 100,000
Gross
wages 900,000
Standard
deduction 40000
Total
income 860,000
Other
deductions 200000
Taxable
income 660000
Income
tax 44500
Income
Tax Savings - 2000
Remember
that the standard deduction is not related to the u/s 80C deduction or any
other part of the VIA chapter.
Interpretation
of the Standard Deduction Calculation
Section
16(ii) Entertainment allowance
Entertainment
allowance is first included in wage income and then deducted based on several
criteria. The allowance must be an allowance specifically provided by the
employer to the taxpayer as an entertainment allowance.
Entertainment
allowance for government employees
The
minimum deduction for central government and state employees is:
20%
of the basic salary
5000
rupees
Amount
Provided as Entertainment Allowance in Fiscal Year
Download and Preparation at a time 50 Employees Form 16 Part
A&B for the Financial Year 2021-22
To qualify for relief, the taxpayer must ensure that the following details are
met:
Salary
must not include any allowances, employer benefits, or other benefits received.
Essentially, wages should be the gross amount received, excluding any other
benefits.
Ignore
the actual amount spent on entertainment benefits received from the employer.
Entertainment
allowance for a non-government employee
The
hospitality deduction is not available to non-government employees. Only
employees of the central or state government are eligible for the deduction. In
addition, employees of local governments and public corporations are not
entitled to the deduction.
Demonstration
of calculating the entertainment allowance deduction
Size
Details
Salary
(excluding other allowances, benefits and privileges) 120000
Entertainment
allowance received per month 1000
Entertainment
allowance for the full fiscal year 12,000
Available
withdrawal amount:
20%
of salary (а) 24000
5000
rupees (b) 5000
The
actual amount received (c) 12000
The
amount allowed as a deduction (minimum a, b and c) is 5000
Download and Preparation at a time 100 Employees Form 16 Part B for the Financial Year 2021-22
Occupational or employment tax under Section 16(iii)
A
deduction is allowed for payroll tax under section 16iii of the Income Tax Act.
The amount paid by the taxpayer in respect of work tax or occupational tax is
allowed as a deduction in accordance with section 16. Here, work tax is
provided for in (2) of section 276 of the Constitution.
When
calculating professional tax deductions, the following points should be
considered:
The
taxpayer must claim the deduction only in the fiscal year in which the
professional tax is paid to the government.
Tax
paid by an employer on behalf of an employee is also eligible for a deduction.
Here, the amount paid by the employer as an occupational tax will be included
in the first place as a mandatory condition in the total salary. Later, an
equal amount will be allowed as a deduction under section 16.
Under section 16 of the Income Tax Law, there
is no upper or lower deduction limit.
However, no state government may charge more than 2500 rupees per year
as professional tax. Only tax paid is deductible, not interest on late payment
or fees for late or non-payment of professional tax.
Download and Preparation at a time 100 Employees Form 16 Part
A&B for the Financial Year 2021-22
