Section 16 of the Income-tax Act, 1961 specifies deductions from income chargeable under the head "Salaries". The three operative categories are the standard deduction, eligible government-employee entertainment allowance and professional tax, subject to the applicable tax regime.
What does Section 16 provide?
Section 15 determines when salary is taxable, while Section 15 and Section 17 govern salary chargeability and definitions. Section 16 then permits specific deductions while computing taxable salary. These are deductions from salary income, not the Chapter VI-A deductions such as section 80C.
Section 16 deductions: old regime versus new regime
| Deduction | Old tax regime | New tax regime (section 115BAC) |
|---|---|---|
| Section 16(ia): standard deduction | Lower of Rs. 50,000 or eligible salary | Lower of Rs. 75,000 or eligible salary (from AY 2025-26) |
| Section 16(ii): entertainment allowance | Available only to qualifying government employees, subject to limits | Not available |
| Section 16(iii): professional tax | Eligible amount actually paid | Not available |
The regime selected for the relevant year and the statutory conditions determine the deduction. The new regime is the default for eligible individuals, subject to the applicable option rules.
Section 16(ia): Standard deduction
The standard deduction is a fixed deduction against eligible salary income; taxpayers do not need to establish corresponding personal expenditure. It is available to salaried employees and, ordinarily, recipients of pension taxable under the salary head.
- Old regime: up to Rs. 50,000.
- New regime: up to Rs. 75,000 for AY 2025-26 onwards, subject to the applicable law.
- Limit: it cannot exceed the eligible salary income itself.
- Multiple employers: it is an annual deduction against aggregate salary income, not a separate deduction for each employer.
Illustration
If annual salary income before section 16 deductions is Rs. 9,00,000, the standard deduction is Rs. 50,000 under the old regime or Rs. 75,000 under the new regime. Salary after this deduction is Rs. 8,50,000 or Rs. 8,25,000 respectively, before considering other applicable items. This illustration does not calculate final tax liability.
Section 16(ii): Entertainment allowance
For an eligible employee receiving salary from the Government, the deduction is the least of (a) the actual entertainment allowance received, (b) 20% of basic salary as specified for this purpose, and (c) Rs. 5,000. It is not available to private-sector employees. Under the new tax regime, this deduction is disallowed.
Example: a qualifying government employee receives Rs. 7,000 as entertainment allowance and has relevant salary of Rs. 3,00,000. The deduction under the old regime is Rs. 5,000, being the least of Rs. 7,000, Rs. 60,000 and Rs. 5,000.
Section 16(iii): Professional tax
Professional tax is a state-level tax on professions, trades, callings and employment within the meaning of Article 276(2) of the Constitution of India. An eligible amount actually paid during the relevant year may be deducted under section 16(iii) in the old regime. If the employer pays the employee's professional tax, the payment is generally included in salary and a corresponding deduction may apply under the old regime. The new regime does not ordinarily permit this deduction.
Article 276 sets a constitutional ceiling of Rs. 2,500 per person per year for such taxes; actual liability depends on the applicable state law.
Pension and family pension
Regular pension received from a former employer is generally taxable under the head "Salaries" and may qualify for the section 16 standard deduction. Family pension received by a family member is generally chargeable under "Income from other sources", with separate rules for deduction under section 57; the section 16 salary deduction should not be applied to it.
Income-tax Act, 2025: transition from 1 April 2026
The Income-tax Act, 2025 takes effect from 1 April 2026. Section 16 of the 1961 Act remains important when interpreting and assessing periods governed by that Act. For tax years governed by the 2025 Act, readers should consult the corresponding salary computation and deduction provisions of the new enactment, along with notifications and rules issued under it. Do not assume that section numbers remain the same between the two Acts.
Salary deduction checklist
- Identify the relevant financial year, assessment year and governing Act.
- Confirm whether the old or new tax regime applies.
- Reconcile salary figures with Form 16 and available payroll records.
- Apply one annual standard deduction, subject to the eligible salary cap.
- Under the old regime, verify any government entertainment allowance and professional tax actually paid.
- Distinguish pension from family pension before applying deductions.
Frequently asked questions
What is the standard deduction for salaried taxpayers?
For assessment year 2026-27, the standard deduction is up to Rs. 50,000 under the old regime and up to Rs. 75,000 under the default new regime, limited in each case to eligible salary income.
Can a private-sector employee claim entertainment allowance?
No. The deduction under section 16(ii) is restricted to qualifying government employees; an allowance received by a private-sector employee is not deductible under that clause.
Is professional tax deductible under both regimes?
Professional tax paid is deductible under section 16(iii) in the old regime. The deduction is generally unavailable when computing income under the new regime under section 115BAC.
Is the standard deduction available to pensioners?
A pension from a former employer is generally taxed as salary and may qualify. Family pension is normally taxed under income from other sources and follows a different deduction provision.
Is proof of expenses required for the standard deduction?
No separate evidence of actual expenditure is required for the standard deduction, although salary and pension records should be retained.
Official law and tax resources
- Income Tax Department - Income-tax Act, 1961
- Income Tax Department - e-Filing portal and taxpayer guidance
- India Code - Central legislation and the Constitution
- Gazette of India - Finance Acts and statutory notifications
- Income Tax Department - circulars, rules and updates
Original Section 16 text and legislative amendment notes
The original webpage's statutory extract and amendment notes are retained below for historical reference. They should be read together with later amendments, including the increased standard deduction under the new regime.
View original statutory extract and amendment history
The income chargeable under the head "Salaries" shall be computed after making the following deductions, namely:-
1 2 * * * * *
3 (ia) a deduction of 4 fifty thousand rupees or the amount of the salary,
whichever is less;
(ii) a deduction in respect of any allowance in the nature of an entertainment allowance specifically granted by an employer to the assessee who is in receipt of a salary from the Government, a sum equal to one-fifth of his salary (exclusive of any allowance, benefit or other perquisite) or five thousand rupees, whichever is less;
5 (iii) a deduction of any sum paid by the assessee on account of a tax on employment within the meaning of clause (2) of article 276 of the Constitution, leviable by or under any law.
6 * * * * *.
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1. Subs. by Act 14 of 2001, s. 12, for clause (i) and (ii) (w.e.f. 1-4-2002).
2. Clause (i) omitted by Act 18 of 2005, s. 6 (w.e.f. 1-4-2006).
3. Ins. by Act 13 of 2018, s. 7 (w.e.f. 1-4-2019).
4. Subs. by Act 7 of 2019, s. 3, for "forty thousand" (w.e.f. 1-4-2020).
5. Ins. by Act 13 of 1989, s. 5 (w.e.f. 1-4-1990). Earlier clause (iii) omitted by Act 20 of 1974, s. 4 (w.e.f. 1-4-1975).
6. Clause (iv) and (v) omitted by Act 20 of 1974, s. 4 (w.e.f.
1-4-1975).
General legal information only; not a substitute for advice based on a taxpayer's specific facts and applicable year.