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. Additionally the availability of the exemption depends on the tax regime chosen by the taxpayer.
This article will discuss one such allowance, i.e., transport allowance and its tax provisions.
What is Transport Allowance?
Transport allowance could mean allowance provided for the purpose of transport from residence to the place of work. 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
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.
Quantum of Exemption
Section 10(14) read with Rule 2BB provides for transport allowance exemption. The amount of exemption is as follows:
| Particulars | Exemption limit | |
| 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 from one place to another. (This exemption would be applicable if he is not receiving any daily allowance) | Exemption amount shall be lower of following: a) 70% of such allowance; or b) Rs. 10,000 per month |
Changes by Finance Act, 2018
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.
Difference Between Transport Allowance and Conveyance Allowance
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.
Transport allowance is fully taxable for all employees in both regimes. However it is exempt under both tax regimes to the extent of 3,200 per month for the employees who are physically challenged such as blind/deaf/dumb or orthopedically handicapped with disability of lower extremities. Conveyance allowance is exempt from tax only to the extent of actual expenditure incurred.
Illustration
Let us derive the taxable income of an employee for the FY 2017-18, FY 2018-19, FY 2019-20 and onwards.
| Particulars | Case 1: FY 2017-18 (Amount in Rs) | Case 2: FY 2018-19 Amount (in Rs) | Case 3: FY 2019-20 & onwards Amount (in Rs) |
| A) Basic salary | 4,50,000 | 4,50,000 | 4,50,000 |
| B) Transport allowance | 48,000 | 48,000 | 48,000 |
| C) Transport allowance exemption | (19,200) | – | – |
| D) Net Salary (A + B - C) | 4,78,800 | 4,98,000 | 4,98,000 |
| E) Standard deduction | – | (40,000) | (50,000) |
| Taxable Income (D - E) | 4,78,800 | 4,58,000 | 4,48,000 |
Let us look the same illustration for an employee who is specially abled.
Particulars | FY 2023-2024 (Amount in Rs) |
A ) Basic salary | 4,50,000 |
B ) Transport allowance | 48,000 |
C ) Transport allowance exemption | 38,400 (3,200 Pm) |
D ) Net Salary (A+ B–C) | 4,59,600 |
E ) Standard deduction | (50,000) |
Taxable Income (D-E) | 4,09,600 |
Transport Allowance Under the New Tax Regime
From the FY 2020-21, the government introduced the new tax regime for individual and HUF taxpayers under section 115BAC. 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 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 an 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 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.
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. The same would be fully taxable in the case of an employee with no disabilities.
How to Claim Transport Allowance While Filing Income Tax Return for an employee who is specially abled?
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:
- Check the CTC structure from the salary slip.
- Check whether the amount of transport allowance is part of the CTC.
- If the amount in the CTC structure is less than Rs 3,200 per month, the entire travel allowance would be tax-free.
- If the amount in the CTC structure is more than Rs 3,200 per month, the tax-free amount would only be Rs 3,200 per month.
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