Conveyance allowance or transport allowance is given by the company or an employer to the employees to compensate them for the expenses of their commute between their residence and the workplace. However, a company only offers conveyance allowance if a transportation facility is unavailable for the employees. There are no set limitations on the amount of conveyance allowance that a company can pay to the employee. To get conveyance allowance, salaried individuals are not required to present any receipts. This additional allowance is paid on top of the basic salary and is only taxed if it crosses the exemption limit. If transportation service is available, the company will not pay the transport allowance, irrespective of whether the employees utilise the facility.
The conveyance allowance falls under the jurisdiction of the Central Board of Direct Taxes (CBDT), and they can amend the existing rules periodically. The CBDT reports to the Central Revenue Department and is a statutory body.
Amendments to Conveyance Allowance Rules
From the 2021-22 financial year, new amendments have been made with regard to conveyance allowance. A subsection has been added to Rule 2BB of the Income Tax Rule, and allows allowances for the following:
- Allowance granted to meet travelling expenses while on tour or transfer
- Allowance granted to meet daily expenses incurred by the employee when they are not in their regular place of work
The conveyance allowance can broadly be classified into the following:
|Conveyance allowance for commuting between the workplace and residence for salaried individuals||Rs. 19,200 per year or Rs. 1,600 per month|
|Conveyance charges for commuting between the workplace and residence for physically disabled or handicapped employees||Rs. 38,400 per year or Rs. 3,200 per month|
|Conveyance charges for the employees who are in the transport business for personal expenditure, during running option transport||Lower of 70% of the allowance, or Rs. 10,000 per month.|
Conveyance Allowance Exemption
Irrespective of the tax bracket the employee falls under, the conveyance allowance has a tax exemption. As per Section 10, sub-section 14(ii) of the Income Tax Act of 1961 and Rule 2BB of Income Tax Rule, the conveyance allowance limit is Rs. 1,600 per month, or Rs. 19,200 per annum. Any conveyance charges above this amount will be taxed.
There are two transport allowance exemptions:
- Transport allowance for blind/deaf/dumb/handicapped employees is Rs. 3,200 per month.
- The conveyance charges offered to the chairman or members of the UPSC is exempt from tax under Section 10, sub-section 45.
Conveyance Allowance Calculation
There is no specific formula that is used to calculate conveyance allowance. The calculation is done on the employee’s basic salary. Since there is no limit on the amount of conveyance expenses that a company can pay their employee, once the amount crosses the exemption limit, the amount is taxable.
For example, if the company pays the employee Rs. 10,000 as conveyance allowance, only Rs. 1,600 is exempt from taxation. The remaining Rs. 8,400 is taxable.
Also Read: What is Dearness Allowance (DA)
Conveyance Allowance for Government Employees
The conveyance allowance for employees of the central government of India can be segregated in the following manner:
|Average distance travelled by the employee for official duty per month||If the employee travels by their vehicle||If the employee uses other modes of transportation|
|201-300 km||Rs. 1,680||Rs. 556|
|301-450 km||Rs. 2,520||Rs. 720|
|451-600 km||Rs. 2,980||Rs. 960|
|601-800 km||Rs. 3,646||Rs. 1,126|
|Over 800 km||Rs. 4,500||Rs. 1,276|
The conveyance allowance is paid by employers to their employees only if there are no company transportation facilities available. This allowance is calculated as a part of the basic salary of the employee and up to a specific amount, exempt from taxation.