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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.
In this article, we will discuss one of such allowances i.e., transport allowance and its tax provisions.
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:
Yes, Section 10(14) read with Rule 2BB provides for exemption of transport allowance.
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 seperate 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|
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.
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. However,
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, 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.
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.