Transport Allowance For Salaried Employees

Transport Allowance for Salaried Employees –
Meaning, Conditions & Exemption

Updated on Nov 04, 2020 - 03:27:14 PM
UNION BUDGET 2019
FM Nirmala Sitaraman has presented her maiden budget on 5th July.
Read the highlights here.
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. We will cover the following topics:
 What is transport allowance?

 Quantum of Exemption
 What are the conditions to claim exemption of transport allowance?
 Difference between transport allowance and conveyance allowance?
 Illustration
 Changes by Finance Act, 2018
 Transport allowance under the new tax regime (FY 2020-21 onwards)
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 Rs 1,600 per month
of duty or Rs 19,200 per
annum
Transport allowance for commuting from place of residence to place Rs 3,200 per month
of duty for an employee who is physically challenged such as or Rs 38,400 per
blind/deaf/dumb or orthopaedically handicapped with disability of annum
lower extremities
Transport allowance for employee of transport business for meeting Exemption amount
personal expenditure during running of such transport 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.
5. Illustration
Salary structure and tax liability of Mr A and Mr B are as follows:
Particulars Amount (in Rs) Amount (in

Rs)
Basic salary 4,50,000 4,50,000
Travel allowance 22,000 13,000
Special allowance 0 9,000
Tax on the above
On basic salary – 5% on Rs 10,000 10,000

2,00,000
On travel allowance 140 0
(5% on Rs 2,800 (22,000-

19,200))
On special allowance 0 450
Total tax liability 10,140 10,450
Tax savings 310

(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;
However, the new tax regime allows an individual to claim the following tax-exempt allowances;
1. 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.
1. 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.
1. 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.

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Transport Allowance for Salaried Employees –

Meaning, Conditions & Exemption

 What is transport allowance?

1. What is Transport allowance?

 Allowance granted to an employee to meet his expenditure for the purpose of

 Allowance granted to an employee working in transport business to meet his personal

3. What are the conditions to claim exemption of

4. Difference between transport allowance and

Particulars Amount (in Rs) Amount (in

Basic salary 4,50,000 4,50,000

Travel allowance 22,000 13,000

Special allowance 0 9,000

Tax on the above

On basic salary – 5% on Rs 10,000 10,000

On travel allowance 140 0

(5% on Rs 2,800 (22,000-

On special allowance 0 450

Total tax liability 10,140 10,450

Tax savings 310

6. Changes by Finance Act, 2018

7. Transport allowance under the new tax regime

1. Allowance to meet conveyance expense incurred while performing duties of an office or

Frequently Asked Questions

 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?

 Can an employee claim tax-free medical reimbursement from an employer?

The tax-exemption for medical reimbursement is no longer applicable. From the FY

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