Poojitha Raam Vinay
Entertainment Allowance is a special allowance given by an employer to employees for hospitality-related expenses — like client meetings, official parties, or business dinners. While it's fully taxable for most employees, a special deduction is allowed only for government employees.
Who Can Claim Entertainment Allowance Deduction?
Central and State Government Employees
Only these employees are eligible for deduction under Section 16(ii) of the Income Tax Act.
Private Sector Employees
Employees working in private companies cannot claim any deduction. For them, the entire entertainment allowance received is taxable under "Income from Salary".
How Much Deduction is Allowed?
The deduction is the least of the following three:
- Actual amount received as entertainment allowance
- 20% of basic salary (not including allowances, benefits, or perquisites)
- ₹5,000
Example:
If a state government employee earns a basic salary of ₹30,000/month (₹3,60,000 annually) and receives ₹10,000 as entertainment allowance:
- Actual received: ₹10,000
- 20% of basic salary: ₹72,000
- Maximum limit: ₹5,000
- Deduction Allowed: ₹5,000 (least of the above)
Indicative List of Components Clubbed Under Entertainment Allowance
| Allowance/Expense Description | Considered as Part of Entertainment Allowance? | Deductible under Section 16(ii)? |
| Client Meeting & Hospitality Expenses | Yes | Yes (if paid as part of salary to govt. employee) |
| Refreshments for Office Guests | Yes | Yes (if part of fixed salary component) |
| Club Membership or Subscription Reimbursements | No | Not deductible under Section 16(ii) |
| Reimbursement of Personal Dining or Travel | No | Not allowed |
| Entertainment Expenses claimed via vouchers (not as allowance) | No | Not part of salary; treated as business expense by employer |
| Fixed Entertainment Allowance shown in monthly salary slip | Yes | Yes (for eligible employees only) |
Points To Remember
- Deduction is available under "Income from Salary", not as an exemption.
- Deduction is not automatic – it must be claimed while filing ITR.
- Applies only to government employees, irrespective of designation or grade.
- Fully taxable for non-government employees, including PSU staff.
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FAQs
No, deduction is allowed only on the entertainment allowance received during active service.
No, only basic salary is considered. DA, HRA, etc., are excluded.
In the "Deductions under Section 16" field in the Salary Schedule of your ITR form.
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