Among all categories of taxpayers, only the salaried class have a tax deduction at source based on the actual tax rates or slab rates they fall under. The majority of their tax for the financial year from their salary income gets deducted at the source itself. In the case of other taxpayers, tax deduction at source is at a fixed rate which may or may not cover their actual tax liability for the financial year.
As the employee’s income tax computation is done by their employers for tax deduction purpose, salaried taxpayers may or may not be very concerned about their salary structuring and details of various kind of allowances and exemptions available to them even before arriving at gross total income. They mostly concentrate on the investments that can be made which provides them deductions from their income. However, understanding allowances and exemptions, provided on such allowances, are also significant for tax planning which helps them choose the right CTC structure and lawfully claim the tax benefit which they are entitled to.
1. What is Transport allowance?
Transport allowance in general 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:
- Allowance granted to an employee to meet his expenditure for the purpose of commuting between his place of residence and office/place of duty
- Allowance granted to an employee working in transport business to meet his personal expenditure during his duty performed in the course of running of such transport from one place to another place provided employee is not in receipt of daily allowance
2. Quantum of Exemption
Yes, Section 10(14) read with Rule 2BB provides for exemption of transport allowance. Exemption is as follows:
|Transport allowance for commuting from place of residence to place of duty||Rs 1,600 per month or Rs 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 orthopaedically handicapped with disability of lower extremities||Rs 3,200 per month or Rs 38,400 per annum|
|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
3. What are the conditions to claim exemption of transport allowance?
In order to claim exemption of transport allowance granted to employee of non-transport business for commuting from residence to office, employee need not furnish any proof of expenditure and further the exemption limit is fixed and available irrespective of actual expenditure. However, the only condition that needs to be fulfilled is that the employee should not have already been provided with office transport /conveyance by employer for such purpose.
Further, in case of employees of transport business no daily allowance should have been provided by their employer in order to claim the exemption.
4. Difference between transport allowance and conveyance allowance?
While transport allowance is an allowance given to meet commuting expenses between place of residence and office or to meet personal expenditure of employee of transport business, conveyance allowance is an allowance granted to meet the expenditure on conveyance in performance of office duty.
Further, while fixed amount of transport allowance is exempt irrespective of actual expenditure, conveyance allowance only to the extent of actual expenditure incurred is exempt from tax.
Salary structure and tax liability of Mr A and Mr B are as follows:
|Particulars||Amount (in Rs)||Amount (in Rs)|
|Tax on the above|
|On basic salary – 5% on Rs 2,00,000||10,000||10,000|
|On travel allowance||140
(5% on Rs 2,800 (22,000-19,200))
|On special allowance||0||450|
|Total tax liability||10,140||10,450|
(due to right CTC structuring)
6. Changes by Finance Act, 2018
Finance Act, 2018 introduced standard deduction of Rs 40,000 in lieu of transport allowance of Rs 1600 per month and also a medical allowance of Rs 15,000. This change shall take effect from the financial year 2018-19 and 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.
7. Transport allowance under the new tax regime (FY 2020-21 onwards)
From the FY 2020-21, the Government gives an optional new tax regimefor 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:
- Allowance by the employer to meet the cost of travel on tour or transfer. It includes allowance towards 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 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.
In the case of an employee who is blind, or 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.
Frequently Asked Questions
Can an employee claim transport allowance for commuting between residence and place of work?
A normal employee (other than a handicapped employee) cannot claim transport allowance for commuting between residence and place of work or employment.
What is the standard deduction for the FY 2019-20 (AY 2020-21)?
The standard deduction for the AY 2020-21 is Rs 50,000.
Can I claim a tax-free reimbursement of relocation expenses from my employer?
You can furnish the proof or invoices of relocation expenses to your employer and claim tax-free reimbursement.
Can an employee claim tax-free medical reimbursement from an employer?
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.