What is Conveyance Allowance or Transport Allowance?
Conveyance allowance or transport allowance 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 there is no transportation provided by the employer.
Update in the Finance Act 2018 for the Transport Allowance
Finance Act, 2018 introduced the standard deduction of INR 40,000 in lieu of a transport allowance of INR 1600 per month and also a medical allowance of INR 15,000. This change shall take effect from the financial year 2018-19 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.
Amount of Exemption on Conveyance Allowance
The Section 10(14) with Rule 2BB provides for exemption of transport allowance. Following explain 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 employee of transport business for meeting personal expenditure during the running of such transport||Exemption amount shall be lower of following: a) 70% of such allowance; or b) INR 10,000 per month|
Tax Exemption on Conveyance Allowance
There is no limit on the amount of conveyance a company can provide to its employer. As per section 10(14) of the income tax act & Rule-2BB, the 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.
Tax Exemption on Transport Allowance
As per Section 10(14) of the income tax act and Rule-2BB, Transport allowance is exempt up to INR 1600 per month. So a total of INR 19,200 is exempt as a transport allowance. For differently-abled employees, the exemption limit for transport allowance is INR 3200 per month (INR 38,400 per annum)
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.
Transport Allowance under the New Tax Regime
Starting from FY 2020-21, the government provides the taxpayers with the option to choose from the new tax regime for individual and HUF taxpayers. In 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 tour or for the period of journey in connection with a transfer. The allowance includes expenses an employee incurs for food and other daily costs while traveling.
- 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 traveling expenses an employee incurs while performing official duties.
Conveyance is provided to meet transportation expenses in the course of official work. Whereas transport allowance can be claimed for expenses related to commute 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 can be claimed as an exemption up to FY 2017-18.