Some employees are required to incur expenditure on the entertainment (tea etc.) of customers, clients etc. who come to meet them in connection with their official or business work. In case employee is given a fixed amount every month to meet this type of expenditure then it is fully added in salary and out of Gross Total Salary, a deduction u/s 16(u) shall be allowed only to govt. employees. This means that in case this allowance is given to employees working in private sector, it is fully taxable.
But in case any amount is reimbursed against any expenditure incurred by employee, it shall be fully exempted.
Deduction uls 16(ii) admissible to govt. employees shall be an amount equal to least of following :
- Statutory Limit of ` 5,000 (maximum).
- 1/5th of Basic Salary.
- Actual amount of entertainment allowance received during the previous year.
Important Note. The actual expenditure incurred by a government employee on entertainment of customers is not relevant for claiming deduction u/s 16(u).
2. Tax on Employment U/s 16 (iii)
In case any amount of professional Tax is paid by the employee or by his employer on his behalf it is fully allowed as deduction.