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Deductions from salaries

Section 19 — Deductions from salaries

Old Act equivalent: Section 16 of IT Act 1961 Sub-part: B.—Salaries

Statutory Text

(1) The income chargeable under the head “Salaries” shall be computed after making the deductions in respect of sums of the nature mentioned in column B of the following Table, not exceeding the amount as mentioned in column C thereof:—

TABLE

Sl. No.Nature of sum (B)Amount of deduction (C)
1Sum paid by the assessee as a tax on employment as per article 276(2) of the Constitution, leviable by or under any law.Entire amount.
2Standard deduction.(a) Rs. 75,000 or the salary, whichever is less, where income-tax is computed under section 202(1) [new tax regime]; (b) Rs. 50,000 or the salary, whichever is less, in any other case.
3Death-cum-retirement gratuity received as referred to in sub-section (2)(g).Entire amount.
4Payment of retiring gratuity received under the Pension Code or Regulations applicable to the members of the defence services.Entire amount.
5Gratuity received under the Payment of Gratuity Act, 1972 (39 of 1972).Amount received, as restricted to the amount calculated as per the provisions of section 4(2) and (3) of the said Act.
6Any other gratuity received by an employee — (i) on his retirement; or (ii) on his becoming incapacitated before such retirement; or (iii) on termination of his employment.Minimum of — (a) actual gratuity received; (b) amount specified by the Central Government, by notification, having regard to the limit applicable to Central Government employees; and (c) half month’s salary for each completed year of service, calculated as: Amount = 1/2 x (A x B) where A = average salary for ten months immediately preceding the month of the event; B = number of completed years.
7Payment in commutation of pension received — (a) under the Civil Pensions (Commutation) Rules of the Central Government; or (b) under any similar scheme applicable to: (i) civil services of the Union or holders of posts connected with defence or civil posts under the Union; (ii) all-India services; (iii) defence services; (iv) civil services of a State or holders of civil posts under a State; or (v) employees of a local authority or a corporation established by a Central/State/Provincial Act.Entire amount.
8Payment in commutation of pension received under any scheme from any other employer.The commuted value determined having regard to the age, state of health, rate of interest and officially recognised tables of mortality: (a) where gratuity received — commuted value of one-third of pension; (b) in any other case — commuted value of one-half of pension.
9Payment in commutation of pension received from a fund as specified in Schedule VII (Table: Sl. No. 3).Entire amount.
10Compensation received by a workman at the time of his retrenchment — (a) under the Industrial Disputes Act, 1947; or (b) under any other Act or rules, orders or notifications; or (c) under any standing orders; or (d) under any award, contract of service or otherwise.Minimum of — (a) compensation received; (b) amount calculated as per section 25F(b) of the Industrial Disputes Act, 1947; (c) such amount, not being less than Rs. 50,000, as may be notified by the Central Government.
11Compensation in accordance with any scheme approved by the Central Government (extending special protection to workmen).Compensation received. (Entire amount.)
12Amount received or receivable on voluntary retirement or termination of service under a scheme of voluntary retirement, by an employee as referred to in sub-section (2)(h).Minimum of — (a) compensation received; and (b) Rs. 5,00,000.
13Payment received by an employee of the Central Government or a State Government as the cash equivalent of the leave salary at his credit at the time of his retirement (superannuation or otherwise).Entire amount.
14Payment of leave salary encashment received by an employee who is not a Central/State Government employee.Minimum of — (a) cash equivalent of leave salary at credit at retirement (earned leave entitlement not exceeding 30 days per year of actual service); (b) A = 10 x B, where B = average monthly salary for 10 months preceding retirement; (c) amount specified by the Central Government by notification (having regard to Central Government employee limits); and (d) actual payment received.

(2) For the purposes of the Table referred to in sub-section (1),—

(a) in respect of Sl. No. 6: if gratuity received from one or more employers in the same tax year (whether or not received in earlier years), the aggregate deduction shall not exceed A – B, where A = the Central Government notified limit, and B = aggregate of gratuity allowed as exemption/deduction in earlier tax years;

(b) in respect of Sl. Nos. 6 and 14: “Salary” includes dearness allowance (if terms of employment so provide) but excludes all other allowances and perquisites;

(c) in respect of Sl. Nos. 10 and 11: the following are deemed to be retrenchment compensation — (i) compensation on closure of undertaking; (ii) compensation on transfer of ownership/management where service interrupted, terms less favourable, or new employer not legally liable for retrenchment compensation;

(d) in respect of Sl. Nos. 10 and 11: “employer” and “workman” have the same meaning as in the Industrial Disputes Act, 1947;

(e) in respect of Sl. No. 12: conditions — (i) schemes must follow Central Government guidelines (including economic viability criteria); (ii) deduction allowed only once — not in multiple tax years; (iii) where relief under section 157 has been allowed for any tax year, such amount shall not be allowed as deduction;

(f) in respect of Sl. No. 14: if leave encashment received from one or more employers in same tax year (whether or not received earlier), aggregate deduction shall not exceed A – B, where A = Central Government notified limit, B = aggregate of amounts allowed as exemption/deduction in earlier tax years;

(g) the death-cum-retirement gratuity referred to in sub-section (1) (Table: Sl. No. 3) shall be as received under the revised pension rules of the Central Government, or the Central Civil Services (Pension) Rules, 2021, or any similar scheme applicable to civil services of the Union, all-India services, civil services of a State, or employees of a local authority;

(h) the schemes of voluntary retirement or termination of service as referred to in sub-section (1) (Table: Sl. No. 12) shall be for the employees of — (i) a public sector company (voluntary separation); (ii) any other company; (iii) an authority under a Central/State/Provincial Act; (iv) a local authority; (v) a co-operative society; (vi) a University; (vii) an IIT; (viii) the Central or any State Government; (ix) a notified institution of national importance; or (x) a notified institute of management.

Sub-sections

Sub-section (1)

The Table providing 14 categories of deductions from salary income with their respective limits.

Sub-section (2)

Interpretive provisions: lifetime caps for gratuity and leave encashment, definition of “salary” for gratuity/leave encashment purposes, deemed retrenchment compensation scenarios, VRS scheme conditions, entities covered for various exemptions.

Provisos

None.

Explanations

None.

Tables

Table 1 (main): The 14-item Table in sub-section (1) — reproduced in full in the Statutory Text section above.

Key Structure

  • Applies to: All assessees computing income under the head “Salaries”
  • Standard deduction: Rs. 75,000 (new regime under section 202(1)) or Rs. 50,000 (old regime)
  • Professional tax: Fully deductible (article 276(2) of the Constitution)
  • Gratuity exemptions:
    • Government/defence: entire amount (Sl. Nos. 3, 4)
    • Payment of Gratuity Act: as per section 4(2)/(3) of the Act (Sl. No. 5)
    • Other employees: minimum of (actual, notified limit, half-month salary x completed years) (Sl. No. 6)
    • Lifetime cap applies across employers and tax years
  • Pension commutation:
    • Government/defence/all-India services/local authority: entire amount (Sl. No. 7)
    • Other employers: 1/3 of pension (if gratuity received) or 1/2 of pension (if no gratuity) (Sl. No. 8)
    • Specified fund: entire amount (Sl. No. 9)
  • Retrenchment compensation: Minimum of (actual, section 25F(b) calculation, notified amount not less than Rs. 50,000) (Sl. No. 10)
  • VRS/VTS: Minimum of (actual, Rs. 5,00,000) — one-time deduction only (Sl. No. 12)
  • Leave encashment:
    • Government employees: entire amount (Sl. No. 13)
    • Others: minimum of (actual, 10 months’ average salary, notified limit, leave credit at 30 days/year) (Sl. No. 14)
    • Lifetime cap applies

Cross-References

  • s015-charging — Section 15: charging section for salaries
  • s016-salary-definition — Section 16: inclusive definition of salary
  • s017-perquisites — Section 17: perquisite definition
  • s018-profits-in-lieu — Section 18: profits in lieu of salary
  • s202-new-tax-regime-individuals — Section 202(1): new tax regime (determines standard deduction amount)
  • Section 157 (not yet ingested) — Relief for arrears/advance salary (old Section 89) — referenced at sub-section (2)(e)(iii) for VRS
  • Schedule VII (Table: Sl. No. 3) — Specified fund for pension commutation exemption (Sl. No. 9)
  • Industrial Disputes Act, 1947 — section 25F(b) for retrenchment compensation calculation
  • Payment of Gratuity Act, 1972 — section 4(2) and (3) for gratuity limits

Amendment Notes

None noted from the extracted pages.

Practical Notes

  • Standard deduction increased to Rs. 75,000 under the new tax regime (section 202(1)) vs. Rs. 50,000 under the old regime — this is a Finance Act 2026 enhancement.
  • Gratuity and leave encashment have lifetime caps — even if received from multiple employers across years, the aggregate deduction cannot exceed the Central Government notified limit minus amounts already claimed.
  • For gratuity under Sl. No. 6, “salary” includes DA (if terms of employment provide) but excludes other allowances and perquisites — this is a restricted definition.
  • VRS exemption (Rs. 5,00,000) is a once-in-a-lifetime benefit — sub-section (2)(e)(ii) explicitly prevents claiming it in multiple tax years.
  • VRS and section 157 (old section 89) relief are mutually exclusive — sub-section (2)(e)(iii).
  • This is the most substantial section in the Salaries head — it consolidates what were spread across sections 10(10), 10(10A), 10(10AA), 10(10B), 10(10C), 10(13A), and 16 of the old IT Act 1961.

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