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December 7, 2015

Deduction u/s 16

Section 16(i)
This sub section provided standard deduction for employed people (like the standard deduction we see now in case of rent). However with passage of time as basic exemption limit was increased it was decided to do away with this benefit. It was increasing the exemption on one hand and taking away some deduction on the other so that  net effect is neutralised.

Section 16(ii)
Entertainment allowance is given to employee for hospitalisation/refreshment costs he incurs in dealing with customer/potential customers of employers.
Some deductions were categorically kept for Govt employee ( like 80CCD for Central Govt Employee only) so that some Govt employment remained attractive over private employment. However with passage of time and magnitude of this deduction it has become irrelevant now. It

There is a need of putting a limit of 1/5th or Rs 5000 as in absence of any limit employer may tend to give the entire salary as entertainment allowance only and employee may get away with deduction of same. Actual expenditure incurred by employee is not relevant as the proofs of expense are neither required to be preserved nor can be sought by ITD.

Section 16(iii)
Under Clause (2) article 276 of the Constitution a State Govt. cannot impose more than Rs.2,500 per annum as professional tax. The limits was Rs 250 earlier and was raised to Rs 2,500 in 1988. State Govt are still insisting to raise the limits to Rs 7.500. The logic was to get some revenue to state govt of it provides infrastructure for employment/trade like VAT applied by respective state govts. However the logic does not appear very valid for taxing someone for working but as it legal under constitution of India therefore following 8 states are levying the same also.
1)    Maharashtra.
2)    New Delhi
3)    Karnataka
4)    West Bengal
5)    Madhya Pardesh
6)    Tamil Nadu
7)    Andhra Pardesh
8)    Gujarat

The rate of tax is based on monthly salary of the individual.