An employee receives a cash entertainment allowance from the employer in tax year 2026–27. How is it treated under the Income-tax Act, 2025?
Question and options
An employee receives a cash entertainment allowance from the employer in tax year 2026–27. How is it treated under the Income-tax Act, 2025?
Included in salary, less a deduction of up to ₹5,000
Exempt in full if it is spent on business entertainment
Exempt up to one-fifth of the employee's basic salary
Included in salary in full, with no deduction for it
Answer and explanation
An entertainment allowance is part of salary under section 16 of the Income-tax Act, 2025, and the Table of deductions in section 19(1) contains no deduction for it. The deduction of the lower of ₹5,000 and one-fifth of salary for government employees existed only under section 16(ii) of the Income-tax Act, 1961.
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