Transport Allowance for Salaried Employees – Meaning, Exemption, Calculation, Rules

For salaried employees, it is crucial to understand all the components of their salary to optimise their tax and effective financial planning. One of the most confusing components of a salary is the Transport Allowance. With the evolving tax rules, the transport allowance is no longer tax-exempt. Read on to learn more about the transport allowance, its meaning, exemption limits, calculation and the applicable rules.

What is Transport Allowance?

A transport allowance is an allowance provided by employers to salaried employees to cover commuting expenses between their homes and workplaces. This component is part of the employee’s Cost to Company (CTC) and is often provided when the company does not offer transportation facilities. The meaning of Transport Allowance under Section 10(14) of the Income Tax Act 1961, along with the role of 2BB on Income Tax rules, can be as follows:

• An allowance is provided to the employee to compensate for the expenses incurred while travelling from the employee’s residence to the workplace.
• The transport allowance is taxable for the employee, as it is part of the employee’s gross salary. However, for employees with disabilities, the allowance is capped at Rs. 3200 per month.

Is Transport Allowance Taxable?

The Transport Allowance in a salary is not entirely taxable. According to section 10(14)(ii)of the Income Tax, the amount received as Transport Allowance is partially taxable. Transport allowance is partially exempted based on your tax status. The following are the exemption rules from the transit allowance.

Particulars	Exemption Limits
Transport from home to workplace (with effect from 2018 – 2019). This allowance has now been discontinued	Rs. 1600 per month or Rs. 19200 per annum
Transport to the workplace for employees who are physically challenged, including blind, dumb, deaf or orthopaedically impaired	Rs. 3200 per month or Rs. 38400 per annum
Employees of transport companies for meeting personal expenses when using transport belonging to the business from one place to another	70% of the allowance or Rs. 10000 per month, whichever is lower

Transport Allowance Calculation

A transport allowance is either a fixed amount or calculated as a percentage of the basic salary. You can determine the transport allowance based on several factors.

• The distance between the employee’s office and home
• Transportation expenses
• Overall salary package

Difference Between Transport Allowance and Conveyance Allowance

A Transport Allowance is the allowance offered by the company to its employees to compensate for the expenses incurred for travelling from the place of residence to the workplace. Whereas, conveyance allowance is the allowance offered to meet the conveyance expenditure while performing office duty.

Transport Allowance Under the New Tax Regime

From the financial year 2020 – 21, a new tax regime was introduced for individual and HUF taxpayers under section 115BAC. If you opt for the new regime, you cannot claim exemptions such as HRA or deductions for tax-saving investments. Here are some of the allowances that you claim if you opt for the new tax regime.

• The cost offered by the employer for travel for work or relocation to a new city is not subject to tax.
• If you’re on a work trip or transferring, and your employer gives you an allowance to cover your daily costs like food, this money is also not taxed.
• Allowance when you spend while working on official or profit-making tasks.
• Any costs incurred are covered to compensate the employee for their regular daily expenses while absent from their regular work location. The allowance is designed to cover the cost of food and other daily expenses incurred while the employee is travelling.

In the case of employees with disabilities, like the blind, dumb, deaf or orthopedically impaired with disability of the lower extremities, they can claim transport allowance while commuting from their residence to the place of duty. The benefit might be around Rs. 3200 per month.

Conclusion

Transport allowance is a crucial part of CTC for many employees. Most are now fully taxable under the new tax regime. However, there are exceptions for employees with disabilities and those in the transport sector. It is also crucial to understand and claim exemptions correctly. To maximise your tax benefits, always verify your Form 16, know your category of eligibility and assess whether the new tax regime serves you better or the old one.