Income Tax > How allowances are treated by Income-Tax Dept.   

All sums paid to employees as Entertainment Allowance must be reported. However, the employee will be granted a deduction limited to 12^½ % of his basic salary OR $7,800 whichever is the lesser.

NOTE: A claim for a deduction will only be permitted where the nature of the job requires the holder to incur an expense of entertaining which must have genuine relevance to the business activity of the employer.