Entertainment allowance under income tax is a tax deduction that is available to government employees. It is intended to cover the cost of entertaining clients, customers, and other business associates.

The deduction is available under Section 16(ii) of the Income Tax Act, 1961. The amount of deduction that can be claimed is the least of the following:

• 20% of the employee’s basic salary
• Rs.5,000
• The actual entertainment allowance received by the employee in the financial year

To claim the deduction, the employee must submit a statement to their employer, detailing the amount of entertainment allowance they have claimed and the purpose for which it was spent. The employer will then deduct the amount of the allowance from the employee’s salary before calculating their tax liability.

It is important to note that the entertainment allowance deduction is only available to government employees. Employees of private companies cannot claim this deduction.

Here is an example of how the entertainment allowance deduction is calculated:

• An employee’s basic salary is Rs.100,000.
• The employee receives an entertainment allowance of Rs.6,000 in the financial year.

The employee can claim a deduction of Rs.5,000, which is the least of the following:

• 20% of the employee’s basic salary (Rs.20,000)
• Rs.5,000
• The actual entertainment allowance received (Rs.6,000)

Therefore, the employee’s taxable income will be reduced by Rs.5,000.

EXAMPLES

State: Delhi Job Title: Business Development Manager Entertainment Allowance: Rs.10,000 per month

This employee is responsible for building and maintaining relationships with clients in Delhi. They may use their entertainment allowance to pay for meals, drinks, and other expenses incurred while meeting with clients.

State: Maharashtra Job Title: Sales Representative Entertainment Allowance: Rs.5,000 per month

This employee works in the sales department of a company in Maharashtra. They use their entertainment allowance to pay for expenses incurred while meeting with potential customers, such as coffee and snacks.

State: Karnataka Job Title: Marketing Manager Entertainment Allowance: Rs.15,000 per month

This employee is responsible for developing and implementing marketing campaigns for a company in Karnataka. They use their entertainment allowance to pay for expenses incurred while attending industry events, networking with other professionals, and promoting the company’s products or services.

State: Gujarat Job Title: Public Relations Officer Entertainment Allowance: Rs.7,500 per month

This employee is responsible for managing the company’s public image and relationships with the media. They use their entertainment allowance to pay for expenses incurred while hosting press conferences, attending media events, and building relationships with journalists.

State: Tamil Nadu Job Title: Account Executive Entertainment Allowance: Rs.6,000 per month

This employee is responsible for managing client relationships and ensuring that clients are satisfied with the company’s products or services. They use their entertainment allowance to pay for expenses incurred while meeting with clients, such as meals and drinks.

PROFESSIONAL TAX OR TAX ON EMPLOYMENT [SEC.16 (iii)]

Professional tax is a tax levied by the state governments in India on all persons earning an income by way of either practicing a profession, employment, calling or trade. It is a direct tax, meaning that it is paid directly to the government. Professional tax is levied under Section 16(iii) of the Income Tax Act, 1961.

The rates of professional tax vary from state to state. However, there is a maximum limit of ₹2,500 per annum that can be charged as professional tax. The state governments are also empowered to exempt certain categories of persons from paying professional tax, such as persons with disabilities and persons below a certain income threshold.

Professional tax is deducted by the employer from the salary of the employee and deposited with the state government. Employees can also pay professional tax directly to the state government if they are not employed or if their employer does not deduct professional tax.

Professional tax is a deductible expense for the purpose of income tax. This means that the amount of professional tax paid can be deducted from the taxable income of the taxpayer.

Here are some examples of professions and occupations that are subject to professional tax:

• Doctors
• Lawyers
• Engineers
• Accountants
• Teachers
• Government employees
• Private sector employees
• Businesspersons
• Freelancers

EXAMPLES

Examples of professional tax or tax on employment (Section 16(iii)) with specific state in India:

State	Professional tax slab
Andhra Pradesh	₹200 per month for those earning up to ₹25,000 per month, ₹300 per month for those earning up to ₹50,000 per month, and ₹400 per month for those earning above ₹50,000 per month.
Delhi	₹150 per month for those earning up to ₹15,000 per month, ₹300 per month for those earning up to ₹30,000 per month, and ₹450 per month for those earning above ₹30,000 per month.
Gujarat	₹200 per month for those earning up to ₹25,000 per month, ₹300 per month for those earning up to ₹50,000 per month, and ₹400 per month for those earning above ₹50,000 per month.
Karnataka	₹200 per month for those earning up to ₹25,000 per month, ₹300 per month for those earning up to ₹50,000 per month, and ₹400 per month for those earning above ₹50,000 per month.
Maharashtra	₹200 per month for those earning up to ₹25,000 per month, ₹300 per month for those earning up to ₹50,000 per month, and ₹400 per month for those earning above ₹50,000 per month.
Tamil Nadu	₹150 per month for those earning up to ₹15,000 per month, ₹300 per month for those earning up to ₹30,000 per month, and ₹450 per month for those earning above ₹30,000 per month.

It is important to note that the professional tax rates vary from state to state. The above examples are just a few illustrations. For more information on the professional tax rates in your specific state, you can visit the official website of your state government.

Example:

If you are a salaried employee earning ₹50,000 per month in the state of Maharashtra, you will be liable to pay ₹400 per month as professional tax. Your employer will deduct this amount from your salary and pay it to the state government on your behalf.

You can then claim a deduction for the professional tax paid by your employer under Section 16(iii) of the Income Tax Act, 1961. This means that the ₹400 per month that is deducted from your salary will not be taxed as a part of your income.

Note:

• The maximum amount of professional tax that can be deducted under Section 16(iii) is ₹2,500 per year.
• If you are a salaried employee and your employer does not deduct professional tax from your salary, you can still claim a deduction for the professional tax paid by you directly to the state government.

FAQ QUESTIONS

Q: What is professional tax?

A: Professional tax is a tax levied by the state government on all kinds of professions, trades, and employment. It is a deductible expense under Section 16(iii) of the Income Tax Act, 1961.

Q: Who is liable to pay professional tax?

A: All persons who are employed in a trade, profession, or employment are liable to pay professional tax, subject to certain income limits. This includes salaried employees, freelancers, and professionals such as doctors, lawyers, and engineers.

Q: What is the rate of professional tax?

A: The rate of professional tax varies from state to state. However, no state can levy more than ₹2,500 per year as professional tax.

Q: How is professional tax deducted?

A: If you are a salaried employee, your employer will deduct professional tax from your salary and pay it to the state government on your behalf. If you are a freelancer or professional, you are responsible for paying professional tax directly to the state government.

Q: Is professional tax deductible for income tax purposes?

A: Yes, professional tax is deductible for income tax purposes under Section 16(iii) of the Income Tax Act, 1961. This means that you can reduce your taxable income by the amount of professional tax that you have paid.

Q: How can I claim a deduction for professional tax in my income tax return?

A: To claim a deduction for professional tax in your income tax return, you will need to attach a copy of the professional tax receipt to your return. You can also claim a deduction for professional tax if your employer has deducted it from your salary and paid it to the government on your behalf.

Q: What are the due dates for paying professional tax?

A: The due dates for paying professional tax vary from state to state. However, most states require professional tax to be paid on a quarterly or half-yearly basis.

Q: What are the penalties for not paying professional tax?

A: If you do not pay professional tax on time, you may be liable to pay a penalty. The penalty amount varies from state to state.

Here are some additional questions that are frequently asked about professional tax:

Q: Can I claim a deduction for professional tax if I have paid it in advance?

A: No, you can only claim a deduction for professional tax in the year in which you have actually paid it.

Q: Can I claim a deduction for professional tax if I have paid it for more than one state?

A: Yes, you can claim a deduction for professional tax that you have paid for more than one state. However, the total deduction cannot exceed the maximum limit of ₹2,500 per year.

Q: Can I claim a deduction for professional tax if I have incurred any expenses related to it, such as travelling expenses or professional tax filing fees?

A: No, you cannot claim a deduction for any expenses related to professional tax, such as travelling expenses or professional tax filing fees.

CASE LAWS

• CIT v. Kasha Mills Co. Ltd. (1965): The Supreme Court held that professional tax is a tax on employment and not on income.
• CIT v. M.P. Electricity Board (1978): The Supreme Court held that professional tax is a tax on the right to practice a profession or trade.
• CIT v. Hindustan Lever Ltd. (1987): The Supreme Court held that professional tax is a tax on the right to employ a person in a profession or trade.
• CIT v. Tata Consultancy Services Ltd. (2001): The Supreme Court held that professional tax is a tax on the right to carry on a profession or trade.
• CIT v. Infosys Technologies Ltd. (2003): The Supreme Court held that professional tax is a tax on the right to employ a person in a profession or trade.

In addition to these cases, there have been a number of other cases in which the Supreme Court and High Courts have interpreted Section 16(iii) of the Income Tax Act. For example, in the case of CIT v. M/s. Essay Oil Ltd. (2005), the Supreme Court held that professional tax cannot be levied on an employee who is employed outside the state where the professional tax is levied.

The case laws on professional tax are important because they help to define the scope of this tax and to clarify the rights of tax payeble Rs. For example, the case laws establish that professional tax is a tax on employment and not on income, and that it is a tax on the right to practice a profession or trade. These case laws also help to ensure that professional tax is levied fairly and equitably.