Trade4asia Allowances in Salary Entertainment Allowance

Entertainment Allowance

Allowances in Salary

Entertainment allowance is an extra compensation paid to the employees for organizing entertainment events, hotel stays, meals, movies, etc. Entertainment allowance received is fully taxable and is first included in the salary and thereafter an eligible deduction is to be made from gross salary. However, deduction in respect of entertainment allowance is available only in case of Government employees and fully taxable for private employees.

Deduction for entertainment allowance

Government employees can claim the LEAST of the following as a deduction for entertainment allowance:

(i) 20% of an individual’s basic salary

(ii) Rs. 5,000

(iii) The actual amount received towards entertainment allowance

This deduction is not available for individuals working in private firms or any statutory or local authorities.

Considerations for entertainment allowance

Entertainment allowance calculation is done based on following:

1. Salary for calculation means only Basic salary without any benefits, perquisites or any other allowances

2. The actual amount spent by an individual from the received entertainment allowance must not be considered

Illustration for Understanding

Mr. Chirag received the following compensation during the year from his employer:

Particulars	Amount (In Rs.) – Per Annum
Basic Salary	5,00,000
Dearness Allowance	2,50,000
Commission	1,00,000
Entertainment Allowance received	40,000

Therefore, the amount to be deductible will be LEAST if the following:

Particulars	Amount (In Rs.) – Per Annum
(i) 20% of Basic Salary { 20% * 5,00,000 }	1,00,000
(ii) Rs. 5,000 Maximum Amount	5,000
(iii) Actual entertainment allowance received	40,000
Exemption: LEAST of (i) to (iii)	5,000