Transport Allowance is an allowance a company or employer provides to employees to compensate for their travel from their residence to the workplace. It is a type of special allowance. Like other allowances, transport allowance is a part of CTC and has fixed pay.
As the employee’s income tax computation is done by their employers for tax deduction purposes, salaried taxpayers may or may not be very concerned about their salary structuring and details of various kinds of allowances and exemptions available to them even before arriving at gross total income. However, understanding allowances and exemptions provided on such allowances is also significant for tax planning. This helps them choose the right CTC structure and lawfully claim the tax benefit to which they are entitled.
This article will discuss one of such allowances, i.e., transport allowance and its tax provisions.
Transport allowance could mean allowance provided for the purpose of transport. However, transport allowance under Section 10(14) of Income-tax Act,1961 read with rule 2BB of Income-tax rules can be either of the following:
Transport allowance is taxable in the hands of the employee since it is added to their gross salaries. However, employees can claim tax exemption for transport allowance as per the exemption limit.
Section 10(14) read with Rule 2BB provides for transport allowance exemption. The amount of exemption is as follows:
|A.||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)
|Rs 1,600 per month or Rs 19,200 per annum|
|B.||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 orthopaedically handicapped with disability of lower extremities||Rs 3,200 per month or Rs 38,400 per annum|
|C.||Transport allowance for employee of transport business for meeting personal expenditure during running of such transport||Exemption amount shall be lower of following: a) 70% of such allowance; or b) Rs. 10,000 per month|
From the financial year 2018-2019, the tax exemption for medical and transport allowances has been merged. The Income Tax Department introduced a standard deduction in place of transport and medical allowance. From the financial year 2019-2020, the standard deduction is Rs 50,000, which covers the transport and medical allowance.
Thus, employees can claim the deduction of Rs 50,000 while filing their ITR without producing any bills or documents. Employers will consider the standard deduction to compute the net taxable salary while calculating the TDS.
This change shall take effect from the financial year 2018-19. Accordingly, no separate transport allowance of Rs 1,600 per month is available to employees other than physically challenged employees and employees of a transport business.
The limit of Rs 40,000 has been increased to Rs 50,000 in the Interim Budget 2019. Know the highlights of the Interim Budget 2019 here.
A transport allowance is an allowance given to meet commuting expenses between the place of residence and office or to meet the personal expenditure of an employee of a transport business.
A conveyance allowance is an allowance granted to meet the expenditure on conveyance in the performance of office duty.
Further, while a fixed amount of transport allowance is exempt irrespective of actual expenditure, conveyance allowance is exempt from tax only to the extent of actual expenditure incurred.
Let us derive the taxable income for FY 2017-18, FY 2018-19, FY 2019-20 and FY 2020-21 onwards.
|Particulars||Case 1: FY 2017-18|
(Amount in Rs)
|Case 2: FY 2018-19|
Amount (in Rs)
|Case 3: FY 2019-20 & FY 2020-21|
Amount (in Rs)
|Transport allowance exemption||(19,200)||–||–|
From the FY 2020-21, the government gives an optional new tax regime for individual and HUF taxpayers. In the new tax regime, there are flat tax rates and no deductions or exemptions. For example, an individual opting for the new tax regime cannot claim exemptions for HRA, standard deduction and others. 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:
In the case of an employee who is blind, deaf and dumb, or orthopedically handicapped, with a disability of lower extremities can claim transport allowance to meet expenditure on commuting between residence and the place of duty. The benefit is up to Rs 3,200 per month.
Usually, employers take care of the tax exemption on transport allowance while deducting TDS from the paycheck. In such cases, employees have to enter the amount mentioned in Form 16 part B in the ‘Income from Salary’ column of their ITR Form.
But when an employer has given a tax benefit on transport allowance or forgotten to give the tax benefit in Form 16, you can claim tax exemption by following the below process:
A normal employee (other than a handicapped employee) cannot claim transport allowance for commuting between residence and place of work or employment.
The standard deduction for the AY 2020-21 is Rs 50,000.
You can furnish the proof or invoices of relocation expenses to your employer and claim tax-free reimbursement.
The tax exemption for medical reimbursement is no longer applicable. From the FY 2018-19, the fixed medical reimbursement and transport allowance stand replaced by a standard deduction.
No, if there is a company-run transportation service facility, they will not pay you a conveyance allowance whether you use the service or not.
No, your employer can pay whatever amount they find appropriate. However, there is a limit on the tax deduction that you can get for it. The maximum tax exemption is set at INR 1,600 per month or INR 19,200 per annum.
Income tax allowances and deductions
Special allowance taxation
Allowances and deductions available to a salaried