The CBDT or Central Board of Direct Taxes has announced the Finance Act, 2018 wherein it has amended the Income Tax Act's Section 18.
Under this new provision of the Income Tax Act, a taxpayer who has income that is chargeable under the head ‘Salaries’ should allow deduction of Rs.40, 000 or the salary amount, whichever is less, for the computation of the taxable income.
The representations are received that are requiring the clarification such as whether a taxpayer, who gets a pension from his /her former employer, should as well be eligible for claiming the deductions.
The pension that a taxpayer gets from his/her former employer is also taxable under ‘Salaries’.
In the same way, any taxpayer who receives a pension from his/her former employer is entitled to claim the deduction which is the pension amount or Rs.40, 000, whichever is lesser as per Section 16 of the Income Tax Act.
The income that is chargeable under ‘Salaries’ head is computed after the following deductions under Section 16:
The entertainment allowance is initially included under the head ‘Salaries’ in the salary income and after that, a deduction is provided on the basis that is counted in the following paragraph:
To determine the entertainment amount allowance that is deducted from the salary, the below points must be considered:
The tax on employment or professional tax, levied by some State in article 276 of the Constitution is granted as deducted.
In this situation, the following points must be kept in mind:
To understand this let us take an example, image Mr. X is posted in the city of Hyderabad and he needs Rs.2, 000 yearly as a professional tax. He paid Rs.4, 000 on 31st May 2019 as professional tax (which is Rs.2, 000 for the year 2018 – 19 and Rs.2, 000 for the year 2019 – 20). In this situation, Rs.4, 000 is deductible for the last year 2019 – 20, here it is not correct to say that only Rs.2, 500 is deductible).