Travel Allowance: Tax Deductions And Benefits Explained

Travelling allowance, also known as transport allowance, is a benefit offered to employees to cover their expenses related to travel between their residence and workplace. It is also provided to employees in the transportation business to cover their personal expenses during duty hours. Transport allowance is a part of the employee's CTC and has fixed pay. While it is taxable under the head 'salaries' and added to the employee's gross salary, they can claim tax exemption for each transport allowance up to a specified limit.

Allowance for commuting between residence and workplace

Transport allowance is a type of allowance that a company or employer provides to employees to compensate for their travel between their residence and workplace. It is a type of special allowance and is a part of the employee's fixed pay.

In terms of income tax, 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.

As per Section 10(14) and Rule 2BB of the Income Tax Act, 1961, the exemption limit for transport allowance is as follows:

• Transport allowance for commuting from the place of residence to the place of duty is Rs. 1,600 per month or Rs. 19,200 per annum.
• Transport allowance for employees who are physically challenged, such as blind, deaf, dumb, or orthopaedically handicapped with a disability of the lower extremities, is Rs. 3,200 per month or Rs. 38,400 per annum.
• Transport allowance for employees of the transport business for meeting personal expenditure during the running of such transport is the lower of 70% of the allowance or Rs. 10,000 per month. This exemption is applicable if the employee is not receiving any daily allowance.

From the financial year 2018-2019, the tax exemption for medical and transport allowances was merged, and a standard deduction of Rs. 50,000 was introduced, which covers both transport and medical allowances. Employees can claim this deduction when filing their income tax returns without producing any bills or documents.

It is important to note that a normal employee (other than a handicapped employee) cannot claim transport allowance for commuting between their residence and workplace.

Tax exemption for employees with disabilities

Travelling allowance is the allowance provided to employees to compensate for their travel expenses from their residence to the workplace. This allowance is added to the employee's gross salary and is taxable. However, employees can claim tax exemptions within certain limits.

Now, coming to the topic of tax exemptions for employees with disabilities, there are several tax benefits available. Here are the key points:

Tax Benefits for Employees with Disabilities:

• Employees with disabilities can claim a higher tax exemption for transport allowance. This includes individuals who are blind, deaf, dumb, or orthopaedically handicapped with disabilities of the lower extremities.
• The transport allowance exemption for employees with disabilities is Rs. 3,200 per month or Rs. 38,400 per annum. This is higher than the exemption for employees without disabilities.
• Local governments and school districts may provide a partial exemption on property tax for eligible disabled homeowners, reducing the assessed value of their residence by up to 50%.
• The Disabled Access Credit offers a non-refundable credit for small businesses that incur expenses to provide access to persons with disabilities. Eligible small businesses can claim this credit annually.
• The Barrier Removal Tax Deduction encourages businesses to remove architectural and transportation barriers for individuals with disabilities and the elderly. Businesses can claim a deduction of up to $15,000 per year for qualified expenses.
• The Work Opportunity Tax Credit provides incentives for employers to hire individuals with disabilities, offering a tax credit ranging from $1,200 to $9,600, depending on the employee and the length of employment.
• Individuals with disabilities may qualify for certain tax deductions, income exclusions, and credits. For example, those with physical or mental disabilities affecting their employment can refer to Publication 529, Miscellaneous Deductions.
• Elderly individuals or those with disabilities may refer to Publication 524, Credit for the Elderly or Disabled.
• Individuals with medical expenses can refer to Publication 502, Medical and Dental Expenses.
• For comprehensive information on tax benefits for persons with disabilities, refer to Publication 3966, Living and Working with Disabilities.

Tax exemption for UPSC members

In India, taxation is a three-tier structure formed by the government that facilitates the imposition of taxes on citizens. The three tiers are the central government, the state government, and local municipal bodies.

In 2011, the government introduced a tax exemption for UPSC members. This included the UPSC chairman and its ten members, who were exempt from paying tax on a similar set of allowances with retrospective effect from April 2008. The tax exemption covered the value of a rent-free official residence, conveyance facilities (including transport allowance), sumptuary allowance, and the value of leave travel concession provided to the top UPSC functionaries and members of their family. Former UPSC chairpersons and members were also entitled to tax exemption on a maximum of 14,000 Indian rupees (INR) per month to pay for an orderly and secretarial assistant, as well as a free phone with 1500 free calls per month.

However, in 2020, India's finance minister, Nirmala Sitharaman, proposed to amend the law to scrap the tax exemption for UPSC members. The Finance Bill, tabled in Parliament, proposed to end the tax exemption for allowances once the money bill was passed. The changes were to take effect from 1 April 2021 and apply to the assessment year 2021-22 and subsequent years.

As of May 2024, conveyance allowance (also known as transport allowance) is a special allowance that companies provide to their employees to cover their commuting expenses. According to Section 10(14)(ii) of the Income Tax Act and Rule 2BB of the Income Tax Rules, salaried individuals can claim a conveyance allowance that is exempted up to the actual expenditure incurred for official purposes or the entire allowance, whichever is less. The exemption limit for orthopedically handicapped or visually impaired individuals is INR 3,200 per month. Notably, as per Section 10(45) of the Income Tax Act, UPSC members do not have to pay any tax on their conveyance allowance.

Calculating conveyance allowance

Conveyance allowance, also known as travel allowance, is paid by employers to compensate employees for travel expenses between their residence and workplace. It is usually offered on top of an employee's basic salary and may or may not be taxable under the Income Tax Act.

The calculation of conveyance allowance is straightforward. It is based on the actual amount of conveyance allowance received from the employer. If the allowance exceeds the exemption limit, the excess amount is taxable.

The exemption limit for the conveyance allowance is INR 1,600 per month or INR 19,200 per annum. This means that employees can claim up to INR 1,600 per month or INR 19,200 per year as tax-exempt income.

For instance, if an employee receives a special allowance of INR 6,000 per month, which is fully taxable, they can substitute INR 1,600 as conveyance allowance and claim tax exemption on it. However, it is recommended to consult a tax advisor before claiming tax exemptions.

It is important to note that conveyance allowance is only applicable when the employer does not provide transportation facilities. If transportation facilities are provided, employees are not entitled to a conveyance allowance.

Additionally, salaried individuals do not need to provide any documents or proof to receive the conveyance allowance. However, to claim the exemption, they must submit Form 10D, signed by the employer, along with their income tax return.

Special Exemption Cases

There are special cases where the exemption limit for conveyance allowance is higher. For individuals who are blind or orthopedically handicapped, the exemption limit is INR 3,200 per month.

Furthermore, according to Section 10(45) of the Income Tax Act, UPSC members do not pay tax on their conveyance allowance.

Difference between transport and conveyance allowance

Travelling allowance is a component of an employee's salary structure. It is an allowance provided by employers to compensate for their employees' travel expenses. There are two types of travelling allowances: transport allowance and conveyance allowance.

Transport Allowance

A transport allowance is an allowance given to meet commuting expenses between the place of residence and the workplace or to meet the personal expenditure of an employee of a transport business. 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.

Conveyance Allowance

A conveyance allowance is an allowance granted to meet the expenditure on conveyance in the performance of office duty. It is also called transport allowance and is a type of allowance offered to employees to compensate for their travel from residence to and from the workplace location. Conveyance allowance is exempt from tax only to the extent of actual expenditure incurred.

Differences between Transport and Conveyance Allowance

• Transport allowance is given to meet commuting expenses between the place of residence and the workplace. On the other hand, conveyance allowance is given to meet transportation expenses in the course of official work.
• Transport allowance is taxable for all employees in both regimes. Conveyance allowance, on the other hand, is exempt from tax to the extent of actual expenditure incurred.
• There is a limit on the amount of exemption for transport allowance under the Income Tax Act. For instance, for the financial year 2018-2019, the exemption limit was Rs. 1,600 per month or Rs. 19,200 per annum. Conveyance allowance, on the other hand, has no limit on the amount of exemption. Companies can offer any amount of conveyance allowance to their employees.
• Transport allowance is given to all employees. Conveyance allowance, on the other hand, is usually provided only if the employer does not provide transportation services.

Frequently asked questions