Entertainment Allowance: Is It Still Deductible from Tax Year 2026-27?
CA Meet Dhrangadhariya 
April 25, 2025
CA Meet Dhrangadhariya April 25, 2025
Table of Contents
3 min readTable of Contents
Last updated: 21 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP
Quick summary
Entertainment allowance is an amount an employer pays for entertaining visitors or clients on the employer’s behalf. It is part of salary and is taxable. For many years one narrow deduction existed for Government employees. The Income-tax Act, 2025 does not carry it forward.
The allowance is first added to salary. A deduction is then allowed, but only to a Government employee in the old tax regime. The deduction is the least of:
Points to note:
A Government employee has a basic salary of ₹4,00,000 and receives an entertainment allowance of ₹40,000.
| Test | Amount in ₹ |
|---|---|
| Fixed limit | 5,000 |
| 20% of basic salary (20% of 4,00,000) | 80,000 |
| Allowance received | 40,000 |
| Deduction (the least) | 5,000 |
The remaining ₹35,000 stays taxable as salary.
From Tax Year 2026-27, deductions from salary are listed in section 19 of the Income-tax Act, 2025. The list covers tax on employment (professional tax), the standard deduction, and the gratuity, pension commutation, retrenchment compensation, voluntary retirement and leave salary items. Entertainment allowance does not appear in it, and the Act does not mention the allowance anywhere else. So from Tax Year 2026-27 the whole entertainment allowance is taxable in every employee’s hands, whether in the government or the private sector.
The new regime never allowed this deduction. It allows the standard deduction of ₹75,000 and the few other items that survive in section 202.
A Government department paying entertainment allowance should stop allowing the ₹5,000 deduction in the TDS calculation for Tax Year 2026-27 onwards, and show the whole allowance as taxable salary.
Only Government employees, under section 16(ii) of the 1961 Act and only in the old tax regime. Private sector employees and employees of local authorities or statutory bodies could not.
The least of ₹5,000, 20% of basic salary, and the entertainment allowance actually received. The amount spent is not relevant.
No. The list of deductions from salary in section 19 of the Income-tax Act, 2025 has no entry for entertainment allowance, so the whole allowance is taxable.
Yes. The deduction depended on the employer paying it as an entertainment allowance.
No. The new regime never allowed it, apart from the standard deduction.
This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.
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