Q.(a) Mr. E paid ₹2,400 as professional tax during the year, out of his own salary, directly to the State Government. State the deduction he can claim under Section 16(iii).

Section 16(iii) allows a deduction for professional tax actually paid, and treats tax paid by the employer on the employee's behalf exactly as if the employee had paid it.

(a) Section 16(iii) allows a deduction, from Gross Salary, of the amount ACTUALLY PAID by the employee during the previous year on account of professional tax. Since Mr. E himself paid ₹2,400 directly to the State Government, he can claim a deduction of exactly ₹2,400 under Section 16(iii).

(b) If the employer instead pays this ₹2,400 directly to the Government on Mr. E's behalf, the Act treats this payment as a monetary perquisite/benefit to Mr. E — it is first ADDED to his Gross Salary (increasing his taxable salary by ₹2,400). However, the Act also treats a professional tax paid by the employer on the employee's behalf as if the EMPLOYEE had paid it, so the very same ₹2,400 is then allowed as a deduction under Section 16(iii). The net effect on Mr. E's taxable Income from Salary is therefore NIL — his Gross Salary goes up by ₹2,400 and his Section 16(iii) deduction also goes up by exactly ₹2,400, c …

In part (b), simply ignoring the ₹2,400 altogether on the reasoning that 'it cancels out anyway' — the correct treatment is to explicitly GROSS UP Gross Salary first and then claim the deduction, not …