Entertainment allowance u/s 16 (ii)

 Entertainment allowance is normally given to Senior Officer. An employer gives allowances to his employee to spend it on the reception of the customers. An entertainment allowance is part of salary.

Hence, it is first to be included in the salary income. Thereafter, a deduction on Entertainment allowance which is given to both types of employee, government and non-government employee as explained below, will be allowed.

i) Government employee: The least of the following will be allowed as a deduction: a) Rs. 5,000, or

b) 1/5th or 20% of the employee’s salary, or

c) Amount of entertainment allowance granted during the year. Meaning of Salary: For the purpose of entertainment allowance, only basic salary shall be considered.

Any other allowance even dearness allowance (Inspite of being under terms of employment), fixed percentage of commission on turnover and dearness pay shall not be included in the salary for the purpose of deduction of entertainment allowance.

ii) Non-government employee (including semi-Government employee, employees of statutory corporation and local authority): From the assessment year 2002-03, the deduction of entertainment allowance to nongovernment employees has been abolished.

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