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For tax year 2026-27, a State Government employee receives an entertainment allowance and has opted out of the default regime under section 202 of the Income-tax Act, 2025. How is the allowance…

Question and options

For tax year 2026-27, a State Government employee receives an entertainment allowance and has opted out of the default regime under section 202 of the Income-tax Act, 2025. How is the allowance treated?

  1. Taxable as salary, with a deduction allowed only under the default regime

  2. Taxable as salary, less a deduction of up to ₹5,000 under section 19

  3. Taxable in full as salary, with no deduction for it under section 19

  4. Exempt in full, because the employer is a government

Answer and explanation

Correct answer: C - Taxable in full as salary, with no deduction for it under section 19

Section 19(1) of the Income-tax Act, 2025 lists the deductions from salary (tax on employment, the standard deduction and gratuity and pension items) and contains no deduction for entertainment allowance, so the allowance is taxed in full as salary whichever regime applies. The deduction of the least of ₹5,000, one-fifth of salary and the amount received was allowed to government employees by section 16(ii) of the Income-tax Act, 1961, which does not apply from tax year 2026-27.

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