The basic salary is the main component of an employee’s salary structure. Apart from that, employers provide many allowances such as HRA, LTA, transport allowance, conveyance allowance etc. Here is a guide which explains the difference between conveyance allowance and transport allowance and the corresponding rules to claim exemption.
What is the meaning of Conveyance Allowance and Transport Allowance?
A transport allowance u/s 10(14) of the income tax act is paid to employees to meet the cost of the daily commute from home to work and vice versa or for personal expenditure in case of employees in the Transport business provided they are not in receipt of the daily allowance. A conveyance allowance u/s 10(45) of the income tax act is an allowance offered to taxpayers who receive income from salary to meet the cost of transportation in the course of official work. Usually, it is provided to employees only if the employer provides no transportation service.
Limit for Transport Allowance Exemption
Section 10(14) with Rule 2BB provides conditions for transport allowance exemption. The following table explains the amount of exemption:
|Transport allowance for commuting from place of residence to place of duty
(with effect from FY 2018-19 no such separate transport allowance is allowed)
|INR 1,600 per month or INR 19,200 per annum
|Transport allowance for commuting from place of residence to place of duty for an employee who is physically challenged such as blind/deaf/dumb or orthopedically handicapped with disability of lower extremities
|INR 3,200 per month or INR 38,400 per annum
|Transport allowance for employees of transport business for meeting personal expenditure during the running of such transport
|The exemption amount shall be lower of following: a) 70% of such allowance; or b) INR 10,000 per month
Up until FY 2014-15, the exemption limit on transport allowance was Rs. 800 per month (INR 9600 per annum). But the limit was enhanced to Rs. 1600 per annum in Budget 2015. This step was taken to provide a tax benefit to middle-class commuters in the country.
Update in the Finance Act, 2019
Finance Act, 2018 introduced a standard deduction of INR 40,000 which was revised to INR 50,000 in Finance Act, 2019 in lieu of a transport allowance of INR 1600 per month and a medical allowance of INR 15,000. This change shall take effect from the financial year 2019-20 and accordingly, no separate transport allowance of INR 1,600 per month is available to employees other than physically challenged employees and employees of a transport business.
Let’s understand with an example:
|Upto F.Y 2017-18
(Amount in INR)
|For F.Y 2018-19
(Amount in INR)
|From F.Y 2019-20 onwards
(Amount in INR)
(Received as a part of Salary)
|Transport allowance exemption
|Net Taxable Salary
Limit for Conveyance Allowance Exemption
There is no limit on the amount of conveyance a company can provide to its employee. As per the income tax act, the conveyance allowance exemption is allowed to an employee to the extent of expenditure actually incurred for official purposes.
Because of such exemption conditions, companies usually provide this allowance on a reimbursement basis. So if an employee incurs any transportation expenses out of pocket for official purposes, the company will reimburse the same amount to him upon submission of proof of expense.
Exemption criteria under the New Tax Regime
Starting from FY 2020-21, the government provides taxpayers with the option to choose from the new tax regime for individual and HUF taxpayers. Under the new tax regime, there are flat tax rates and no deductions or exemptions. Also, the individual cannot claim deductions for any tax-saving investments. However, the new tax regime allows an individual to claim the following tax-exempt allowances:
- Allowance by the employer to meet the cost of travel on tour or transfer. It includes an allowance for the cost of travel such as airfare, rail fare, and other transportation costs.
- Any allowance by the employer to meet the ordinary daily charges incurred by an employee on account of absence from the usual place of duty. The allowance should be in respect of the tour or for the period of the journey in connection with a transfer. The allowance includes expenses an employee incurs for food and other daily costs while travelling.
- Allowance to meet conveyance expense incurred while performing duties of an office or employment of profit. However, in this case, the employer should not provide a free conveyance to the employee. The allowance includes travelling expenses an employee incurs while performing official duties.
A conveyance allowance is provided to meet transportation expenses in the course of official work. Whereas transport allowance can be claimed for expenses related to commuting between home and work.
This allowance is completely exempt from tax. However, Transport allowance up to INR 1600 per month or INR 19,200 per year was being claimed as an exemption up to FY 2017-18. From FY 2018-19 it was replaced by a standard deduction.
Yes, you can claim actual expenses reimbursed for relocation as exempt by providing proof or invoices for such expenses.