Entertainment Allowance: Section 16(ii)

As per the provisions of Section 16(ii) of the Income Tax Act, 1961 total income under the head salary shall be computed after allowing a deduction of entertainment allowance.

1. Meaning of Entertainment Allowance: Entertainment allowance means an allowance granted by an employer to his employee for client meetings, food, hotel stay etc.
2. Taxability: Such entertainment allowance is taxable in the hands of an employee working in the private sector. However, such allowance is exempt in case the employee receives the same from the government i.e., if the employer is government, entertainment allowance is exempt subject to the following limit:- a) 20% of the salary of employee exclusive of all other allowances, benefits and other perquisites b) Actual entertainment allowance c) INR 5000