A salaried employee has to incur costs to commute between workplace and his/her residence. My employers pay these expenses to the employees in the form of transport allowance or provide reimbursement on the cost incurred on any commute made for official purposes.
Since tax on the income earned from salary is generally computed by the employer and paid on the employee's behalf through TDS (tax deducted at source), individual tax payers usually fixate on seeking tax exemptions in their ITR (income tax returns) from their personal investments rather then allowances received from employer.
What is transport allowance and conveyance allowance?
As per section 10(4) of the Income Tax Act,
Transport allowance is:
- allowance granted to an employee to meet expenditure for the purpose of commuting between place of residence and place of duty.
- allowance to an employee working in any 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 and is not in receipt of daily allowance.
Conveyance allowance is the allowance granted to meet the expenditure on conveyance in performance of duties of an office.
Other travel allowance:
Any allowance granted to meet the cost of travel on tour or on transfer.
If the employer provides office transport /conveyance for the above stated purposes, the employer will not pay such an allowance to the employee.
Tax implication for FY 2018-19
In Budget 2018, it was decided to provide taxpayers with a standard deduction of Rs 40,000. The tax exemption on transport allowance up to the extent of Rs 1,600 per month was withdrawn at the same time. It is now fully taxable, however, exceptions are provided to physically handicapped taxpayers.
If the employee is blind or deaf and dumb or orthopedically handicapped with disability of lower extremities, transport allowance up to the extent of Rs 3,200 per month is not taxable.
Conveyance allowance is tax exempt to the extent of expenditure incurred.
Allowance granted to meet the cost of travel on tour or on transfer is tax exempt to the extent of expenditure incurred.