Skip to content

Direct and Indirect Taxation · Salaries

Deductions from Salary Income: Standard Deduction, Entertainment Allowance, Professional Tax

Updated 10 October 2026 · Fact-checked

Deductions from salary income are the three items you subtract from gross salary to reach income under the head Salaries: standard deduction, entertainment allowance (Government employees only) and professional tax. Add up taxable salary first, then subtract each deduction. Under the new regime only the standard deduction is available.

Understand Deductions from Salary Income

Income under the head Salaries is not simply the gross salary. The law lets you subtract a few items from it. These are the standard deduction, the entertainment allowance deduction and the tax on employment, which is commonly called professional tax. Everything else about salary (basic pay, allowances, perquisites) is covered in other topics. Here you only handle what comes off at the end.

The standard deduction is a flat deduction given to every salaried person. You do not need bills or proof. It cannot exceed your salary income, so it never creates a loss. For the June 2027 term, use ₹75,000 under the new tax regime and ₹50,000 under the old regime.

The entertainment allowance deduction applies only to a Government employee. Any entertainment allowance you receive is first added to salary. Then a limited amount is deducted. A private-sector employee gets no deduction, so the whole allowance stays taxable.

Professional tax (tax on employment) is levied by the State. If the employee pays it, or the employer pays it on the employee's behalf, it is deducted from salary. If the employer pays it for the employee, first include it as a taxable perquisite, then allow it as a deduction. Under the new regime, the entertainment allowance and professional tax deductions are not available. This is the main point examiners test.

Do not confuse these with two other provisions in the Act. Section 29 is a deduction allowed to the employer for contributions to recognised provident funds, approved gratuity funds and similar items. Section 392 is about tax deducted at source from salary. It is not a deduction in computing the employee's income.

Key rules to remember

Standard deduction
Lower of (₹75,000 new regime / ₹50,000 old regime) and salary income
Flat amount, no proof needed. It cannot exceed the salary income, so it cannot make the head Salaries negative.
Entertainment allowance (Government employee, old regime)
Least of: (a) actual allowance received; (b) 1/5 of basic salary; (c) ₹5,000
Basic salary means basic pay only, excluding allowances and perquisites. Not for non-Government employees.
Professional tax
Actual tax on employment paid in the year
Old regime only. If the employer pays it for the employee, add it as a perquisite first and then deduct it.
Order of computation
Income from Salaries = Gross salary − entertainment allowance deduction − professional tax − standard deduction
Add the entertainment allowance into gross salary before deducting it.

How to solve Deductions from Salary Income questions

Use this order for any question on computing salary income with these deductions.

  1. 1Identify the regime. If the question does not say, old and new regime may both be asked. Under the new regime only the standard deduction is available.
  2. 2Identify the employer type. Entertainment allowance is deductible only for a Government employee.
  3. 3Compute gross taxable salary: basic pay, taxable allowances (including the entertainment allowance received), taxable perquisites and other salary items.
  4. 4Compute the entertainment allowance deduction as the least of the three limits. Use basic pay only for the one-fifth test.
  5. 5Take professional tax paid during the year (old regime). If the employer paid it, confirm it is already included as a perquisite.
  6. 6Take the standard deduction for the regime, limited to salary income left.
  7. 7Subtract all deductions from gross salary and write the final figure as Income from Salaries.

Quickest way: Three-line deduction check

When to use it: Use this in a 2-mark MCQ or when you have a few minutes in a 14-mark answer.

  1. Ask: new regime? If yes, deduct only the standard deduction of ₹75,000 and stop.
  2. If old regime: is the employee a Government employee? Only then take the entertainment allowance as the least of actual, 1/5 of basic, and ₹5,000.
  3. Add professional tax actually paid and the ₹50,000 standard deduction, then subtract the total from gross salary.

Common mistakes in Deductions from Salary Income

  • Allowing entertainment allowance deduction to a private-sector employee.

    Students remember the formula but forget the condition that the employee must be in Government service.

    Fix: Check the employer type first. For a non-Government employee, the full allowance stays taxable and no deduction is given.

  • Taking 1/5 of gross salary instead of 1/5 of basic salary.

    The word 'salary' in the rule is read loosely.

    Fix: Use basic pay only. Exclude all allowances, perquisites and bonus unless the question says otherwise.

  • Deducting the entertainment allowance without first including it in gross salary.

    Students treat the deduction as an item of its own and skip the inclusion step.

    Fix: Always list the allowance received in gross salary, then deduct the allowed amount. The unallowed part remains taxable.

  • Allowing professional tax and entertainment allowance under the new regime.

    The deductions are memorised without linking them to the regime.

    Fix: Treat the new regime as a standard-deduction-only case. Write the regime at the top of your answer.

  • Using ₹50,000 or ₹75,000 without matching the regime.

    Both figures are remembered, but the regime link is missed.

    Fix: ₹75,000 for the new regime, ₹50,000 for the old regime. Write the amount beside the regime name.

  • Confusing section 29 and section 392 with deductions from salary income.

    Both sections deal with salary or employees and look relevant.

    Fix: Section 29 is the employer's deduction for specified contributions. Section 392 is TDS on salary. Neither is a deduction in the employee's computation.

Worked examples

Example 1

Mr. Ramesh Iyer is a Government employee. For the year his basic salary is ₹6,00,000, entertainment allowance received is ₹36,000 and other taxable allowances are ₹1,20,000. He paid professional tax of ₹2,500. Compute his income from salaries under the old regime.

Show the solution
  1. Gross salary = 6,00,000 + 36,000 + 1,20,000 = ₹7,56,000.
  2. Entertainment allowance deduction is the least of: actual ₹36,000; 1/5 of basic = ₹1,20,000; ₹5,000. The least is ₹5,000.
  3. Professional tax deduction = ₹2,500.
  4. Standard deduction (old regime) = ₹50,000.
  5. Income from salaries = 7,56,000 − 5,000 − 2,500 − 50,000 = ₹6,98,500.

Answer: Income from salaries = ₹6,98,500.

Example 2

Ms. Kavita Menon works in a private company. Her taxable gross salary is ₹9,40,000 and she paid professional tax of ₹2,400. Compute income from salaries under (a) the new regime and (b) the old regime.

Show the solution
  1. (a) New regime: only the standard deduction of ₹75,000 is allowed. Professional tax is not deducted.
  2. Income = 9,40,000 − 75,000 = ₹8,65,000.
  3. (b) Old regime: no entertainment allowance deduction, as she is a private employee.
  4. Deduct professional tax ₹2,400 and standard deduction ₹50,000.
  5. Income = 9,40,000 − 2,400 − 50,000 = ₹8,87,600.

Answer: New regime: ₹8,65,000. Old regime: ₹8,87,600.

Exam tips

  • Write the regime at the top of your answer. Examiners award a mark for choosing the correct set of deductions.
  • In MCQs the entertainment allowance trap is usually the ₹5,000 cap or the Government employee condition. Check both before calculating.
  • Show the least-of-three working for the entertainment allowance in a small box. Each limit earns a step mark even if the final figure slips.
  • Use a fixed layout: gross salary, deductions listed one by one, then income from salaries. This is the layout the full computation question expects.
  • Do not bring section 29 or section 392 into the computation unless the question asks about employer deductions or TDS.

Practice questions from Salaries

Deductions from Salary Income in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Deductions from Salary Income: frequently asked questions

Who can claim the standard deduction from salary?

Any person with income under the head Salaries can claim it. No proof is needed. It is ₹75,000 under the new regime and ₹50,000 under the old regime, and it cannot exceed the salary income.

Can a private employee claim the entertainment allowance deduction?

No. Only a Government employee gets the deduction. For a private employee the entire entertainment allowance received is taxable salary.

Is professional tax deductible under the new regime?

No. Under the new regime, the only deduction from salary is the standard deduction. Professional tax is deductible only under the old regime.

Is the deduction under section 29 the same as a deduction from salary income?

No. Section 29 allows an employer to deduct specified sums such as contributions to a recognised provident fund or approved gratuity fund. It is not a deduction in computing an employee's salary income.