Section 15 and 16 of Income Tax Act: Salary Income and Deductions
Sections 15 and 16 of the Income Tax Act, 1961 deal with two basic questions for a salaried taxpayer: when salary becomes taxable under the head "Salaries", and which deductions are allowed while computing taxable salary income.
Section 15 - When is salary taxable?
Section 15 specifies the point at which income is chargeable to income tax under the head "Salaries". The provision covers salary from a present employer as well as a former employer.
Income covered by Section 15
Salary is chargeable under this head where it is:
- Due: salary due from an employer or former employer during the previous year, whether actually paid or not.
- Paid in advance: salary paid or allowed during the previous year even though it was not yet due.
- Paid as arrears: arrears of salary paid or allowed during the previous year, if those arrears were not charged to income tax for an earlier previous year.
In practical terms, Section 15 prevents salary from escaping tax merely because payment and accrual fall in different periods. It also prevents the same advance salary from being taxed twice.
Advance salary - Explanation 1
If salary paid in advance has already been included in total income for a previous year, it is not included again when that salary subsequently becomes due. This is an anti-double-taxation rule within the salary charging provision.
Partner's remuneration is not salary - Explanation 2
Salary, bonus, commission or other remuneration due to or received by a partner from the firm is not treated as "salary" for Section 15. Such partner remuneration is governed by the provisions applicable to income from business or profession, subject to the Act.
Meaning of salary
Section 15 determines when salary is chargeable, while Section 17 defines salary, perquisites and profits in lieu of salary. The statutory definition is inclusive and extends beyond basic pay to specified items such as wages, pension, gratuity, fees, commission, perquisites and advance salary, subject to the detailed provisions and exemptions of the Act.
Section 16 - Deductions from salary income
Section 16 provides deductions to be made while computing income chargeable under the head "Salaries". The operative deductions are the standard deduction under clause (ia), entertainment allowance for qualifying Government employees under clause (ii), and tax on employment or professional tax under clause (iii).
| Provision | Deduction | Key rule |
|---|---|---|
| Section 16(ia) | Standard deduction | For AY 2026-27, up to Rs. 50,000 under the old tax regime and up to Rs. 75,000 where the enhanced deduction applies under the new tax regime, limited to salary if salary is lower. |
| Section 16(ii) | Entertainment allowance | Available only to an assessee receiving salary from the Government. Deduction is the least of the prescribed limits, including one-fifth of salary and Rs. 5,000. |
| Section 16(iii) | Tax on employment | Deduction for employment or professional tax paid by the assessee where levied under a law within Article 276(2) of the Constitution. |
Standard deduction under Section 16(ia)
The standard deduction is a fixed deduction against salary income and does not require the employee to prove corresponding expenditure. For AY 2026-27, taxpayers under the old tax regime can claim up to Rs. 50,000, while taxpayers under the new tax regime can claim up to Rs. 75,000. The deduction cannot exceed the relevant salary amount.
Entertainment allowance under Section 16(ii)
This deduction is specifically restricted to an assessee who receives salary from the Government and is granted an entertainment allowance. Subject to the statutory wording, the deductible amount is restricted to the prescribed ceiling and is not a general deduction for employees of private-sector employers.
Professional tax under Section 16(iii)
A sum paid by the assessee as tax on employment, commonly referred to as professional tax, is deductible under Section 16(iii) where the levy is imposed under a law contemplated by Article 276(2) of the Constitution. The deduction is linked to the amount paid by the assessee.
How Sections 15, 16 and 17 work together
The three provisions form the core statutory framework for salary income. Section 15 identifies when salary is chargeable. Section 17 explains what is included in salary, perquisites and profits in lieu of salary. Section 16 then allows the specified deductions in computing income chargeable under the salary head.
Simple computation framework
Gross salary under the Act
Less: eligible exemptions, where applicable under the chosen tax regime
Equals: net salary
Less: deductions permitted under Section 16
Equals: income chargeable under the head "Salaries".
The deductions and exemptions available can differ between the old and new tax regimes. A taxpayer should therefore apply the provisions relevant to the selected regime and the applicable assessment year rather than relying on an older salary computation.
Official references
For the statutory text and current filing guidance, refer to the Income Tax Act, 1961 on India Code and the Income Tax Department guidance for salaried individuals for AY 2026-27.
Note: This article is a general explanation of the statutory provisions. Tax treatment can depend on the assessment year, tax regime, nature of receipt, exemptions and individual facts.