Section 16 of the Income Tax Act 1961: Deductions from Salaries

Written by : Knowledge Centre Team

2026-07-30

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Indian Income Tax Act 2025 provides you with multiple avenues for reducing your gross taxable income. These tax deductions reduce your tax burden, especially if you are salaried. One such tax deduction is available under Section 19 (previously known as Section 16) of the Income Tax Act, 2025.

As per the reforms introduced in the Finance (No. 2) Act, 2024, the standard deduction under the new tax regime was increased from ₹50,000 to ₹75,000, effective from AY 2025-26. This enhancement provides greater tax relief to salaried individuals and pensioners while simplifying the tax filing process under the default tax regime.

Section 19 primarily allows deductions from salary income through the standard deduction, entertainment allowance (for eligible government employees), and professional tax paid under the old tax regime. Understanding how these deductions work can help you estimate your taxable salary accurately and choose the tax regime that best suits your financial situation.

Key Takeaways

Section 19 (formerly Section 16) offers deductions on salary: standard deduction, entertainment allowance, and professional tax paid
Standard deduction is ₹50,000 (old regime) and ₹75,000 (new regime from AY 2026-27 onwards)
Entertainment allowance deduction applies only to government employees, not private-sector staff
Professional tax paid is deductible under the old tax regime only
The new tax regime allows only the standard deduction; other exemptions like Section 123 (previously known as Section 80C) are not available

What is Section 19 (formerly Section 16) of the Income Tax Act?

Section 19 (formerly Section 16) of the Income Tax Act, 2025 provides for certain deductions from salary income. These deductions help reduce your taxable salary before calculating your income tax liability, thereby lowering the amount of tax you need to pay.

You can reduce tax incidence on your salary income with deductions under Section 19 under the following heads:

1. Standard Deduction

2. Entertainment Allowance

3. Professional Tax Paid

You should note that you can avail of these deductions under Section 80 when you follow the old regime of tax slabs. However, if you opt for the new tax regime under Section 115BAC, only the standard deduction under Section 19 is available. Deductions for entertainment allowance, professional tax paid, and most deductions under Chapter VI-A (such as Section 123 and Section 126) generally cannot be claimed under the new regime.

Additionally, Section 19 applies only to income taxable under the head "Salaries." This means salaried employees and eligible pensioners receiving taxable pension from a former employer can claim the standard deduction, subject to the applicable provisions of the Income Tax Act.

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What are the Deductions Under Section 19?

The deductions available under Section 19 help reduce your taxable salary and are applicable only to income taxable under the head "Salaries." While the old tax regime allows multiple deductions under this section, the new tax regime permits only the standard deduction. Section 19 of the Income Tax Act, 2025 applies before your net taxable income. Thus, you will need to consider the following deductions before estimating your tax liability for the year:

Standard Deduction: The standard deduction is a fixed amount you can deduct from your taxable salary. Unlike other tax deductions, you do not need to submit investment proofs or expense receipts to claim this deduction. It is automatically available to eligible salaried individuals and pensioners receiving taxable pension from a former employer.

You can deduct the following amount depending on the tax regime you choose:
- ₹50,000 under the old tax regime
- ₹75,000 under the new tax regime (from AY 2025-26 onwards) under Section 115BAC(1A)
Deduction for Entertainment Allowance: Additionally, you can claim a deduction on the Entertainment allowance. This allowance shall be first added to your salary income under the head “Salaries”. Thereafter, you can claim a deduction on it on the following grounds:
- Government Employees: If you are a central or state government employee, you can claim the lower of the following as a deduction:
  1. ₹5,000
  2. 20% (1/5th) of Basic Salary, or
  3. Amount of the entertainment allowance
    This deduction is available only if the entertainment allowance forms part of your taxable salary.
  4. Private Sector Employees: Deduction for entertainment allowance is not available.
  5. Employees of Statutory Corporations and Local Authorities: Deduction for entertainment allowance is not available.
    
    Note: It is important to consider the following points to ascertain the amount of entertainment allowance deductible from your salary:
  6. Salary will not include any allowance, benefit, or any other form of perquisites
  7. You can't consider your expenses towards entertainment for claiming a deduction
  8. You can account for the expenses you incur out of the entertainment allowance you have received
Professional Tax or Employment Tax: State governments in India can levy a professional income tax. You can claim this state government tax as a deduction from your final tax liability for the year with the central government.

The maximum amount state governments can deduct as professional tax is ₹2500 per financial year. Thus, this is the maximum amount of deduction you will claim under this head. Accordingly, this is generally the maximum deduction available under this head.

If your employer pays the professional tax on your behalf, the amount is first treated as a taxable perquisite and is then allowed as a deduction under Section 19, subject to the applicable provisions.

Note: Deductions under the Entertainment allowance and Professional Tax or Employment Tax are not applicable under the new tax regime. Under the new tax regime, only the standard deduction can be claimed under Section 19.

How Does Deduction Under Section 19 Work?

The government had introduced the provision of the standard deduction in the Union Budget. The key benefit of this provision is that it provides tax relief to salaried taxpayers. The Finance Ministry raised the limit of deduction under Section 16 of the Income Tax Act from ₹40,000 to ₹50,000 in the Union Budget 2019.

Previously, taxpayers could claim specific reimbursements like:

Medical allowance = ₹15,000 per annum
Transport allowance = ₹1,600 per month (i.e., ₹19,200 per annum)

The introduction of the standard deduction of ₹50,000 replaced these individual allowances, simplifying the process and providing a greater tax benefit.

Today, the standard deduction is applied automatically, reducing your taxable income before your income tax is calculated. Unlike deductions linked to investments or expenses, you do not have to submit bills, receipts, or investment proofs to claim it.

Current Standard Deduction Limits:

Under the old tax regime, the standard deduction remains ₹50,000
Under the new tax regime (default option from AY 2025-26), the standard deduction rises to ₹75,000, significantly lowering taxable income without the need to track multiple allowances or submit proofs

As a result, the standard deduction not only lowers your taxable income but also makes tax computation simpler for salaried employees and eligible pensioners.

Click here to use - Income Tax Calculator

Example of Section 16 Deduction in Tax Calculation:

Suppose the following are your salary details:

Particulars	Amount
Basic Salary	₹5,00,000
Allowances	₹2,00,000
Gross Salary	₹7,00,000

For simplicity, let's understand how the standard deduction under Section 19 reduces your taxable salary under both tax regimes.

Under the Old Tax Regime: Standard deduction under Section 19 = ₹50,000

Particulars	Amount
Gross Salary	₹7,00,000
Less: Standard Deduction	₹50,000
Taxable Salary	₹6,50,000

If you are eligible for other deductions such as those under Section 123, Section 126, or home loan benefits, they will be deducted separately while calculating your final taxable income.

Under the New Tax Regime (AY 2025-26 onwards): Standard deduction under Section 19 = ₹75,000

Particulars	Amount
Gross Salary	₹7,00,000
Less: Standard Deduction	₹75,000
Taxable Salary	₹6,25,000

Since most exemptions and deductions are not available under the new tax regime, the higher standard deduction provides additional tax relief without requiring any investment declarations or proof.

Did You Know?

If your employer misses the standard deduction while deducting TDS, you can still claim it when filing your Income Tax Return

Source: Moneycontrol

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How to Reduce Your Tax Liability?

You can decrease your tax incidence on your salary income by investing in tax-saving investments. While Section 19 (formerly Section 16) helps reduce your taxable salary through eligible salary deductions, you can further lower your tax liability under the old tax regime by claiming deductions under the Income Tax Act, 2025, such as Section 123 (certain investments and payments), Section 124 (National Pension System contributions), and Section 126 (health insurance premiums).

Here are different types of tax-saving investment instruments on which you can claim deductions from your taxable income:

Tax-Saving Investments:

Particulars

Deduction limit (in ₹)

i. The premium of the life insurance policy

ii. PPF, EPF, and superannuation funds

iii. Equity-linked saving scheme (ELSS)

iv. National saving certificate (NSC)

v. Unit Linked Insurance Plan (ULIP)

vi. Tax saving Term Fixed Deposit for at least 5 years

vii. Premiums paid for life insurance pension plans

viii. Self-contribution to NPS (National Pension Scheme)

Up to ₹1.5 lakhs

Additional deduction on:

The contributions in NPS

Contributions towards Atal Pension Yojana

Repayment of home loan principal (for 60+ taxpayers)

Up to ₹50,000

Apart from these investments, certain necessary expenses also reduce your tax liability. For example, the medical insurance premium you pay for your family or the treatment cost for your parents.

Choosing the Right Tax Regime:

Before filing your income tax return, compare the benefits available under both tax regimes:

Old Tax Regime: Suitable for taxpayers who claim multiple deductions and exemptions, including those under Sections 123, 126, home loan interest provisions, and eligible salary deductions under Section 19 (previously known as Section 16)
New Tax Regime: Offers lower tax rates and a higher standard deduction of ₹75,000, but most deductions and exemptions are not available

Selecting the regime that provides the lowest overall tax liability can help you maximise your tax savings.

Conclusion

Understanding Section 19 of the Income Tax Act, 2025 can help salaried individuals and eligible pensioners reduce their taxable salary and optimise their tax planning. The standard deduction, entertainment allowance, and professional tax deductions offer valuable tax benefits, although their availability depends on the tax regime you choose. While the old tax regime allows multiple salary-related deductions, the standard deduction in the new tax regime is ₹ 75,000, making it an attractive option for many taxpayers. Before filing your income tax return, compare the deductions and tax rates under both regimes to determine which one offers the greatest tax savings based on your financial profile.

Glossary

Standard Deduction: A fixed deduction from salary income that reduces taxable income without requiring proof of expenses
Taxable Salary: The portion of your salary on which income tax is calculated after applying eligible deductions
Entertainment Allowance: An employer-paid allowance deductible only for eligible central and state government employees
Professional Tax: A state government tax on employment, professions, or trades deductible under the old tax regime
Tax Regime: The income tax system that determines the applicable tax rates, deductions, and exemptions for taxpayers

FAQs

Yes, under the old tax regime, you can claim both the standard deduction (₹50,000) and the professional tax paid (up to ₹2,500) as separate deductions from your salary income. Under the new tax regime, only the standard deduction (₹75,000 from AY 2025-26) is allowed.

No, the entertainment allowance deduction is allowed only for central and state government employees. Private-sector employees and employees of statutory corporations or local authorities are not eligible for this deduction.

From AY 2025-26 onward, salaried employees opting for the new tax regime can claim a ₹75,000 standard deduction. This helps reduce taxable income significantly without the need to submit proofs or track multiple allowances, simplifying tax filing and lowering the overall tax liability.

The deduction under Section 19 of the Income Tax Act includes three salary-related deductions: the standard deduction, entertainment allowance, and professional tax paid. While the old tax regime allows all eligible deductions under Section 16, the new tax regime permits only the standard deduction, subject to the applicable provisions.

The standard deduction under Section 16(ia) is a fixed deduction available to eligible salaried employees and pensioners to reduce their taxable salary. It is ₹50,000 under the old tax regime and ₹75,000 under the new tax regime (from AY 2025-26 onwards). You can claim this standard deduction under Section 16 automatically without submitting investment proofs or expense receipts.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.

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Section 16 of the Income Tax Act 1961 - Deductions from Salaries

Key Takeaways

What is Section 19 (formerly Section 16) of the Income Tax Act?

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