A "transport allowance" is an allowance for transportation purposes. It is taxed under the head wages in the employee's hands. It's included in your gross pay. The current transportation allowance is ₹1,600 per month or ₹19,200 annually, which is more than twice the former cap. Read this blog to know more.
The transport allowance is one of the most well-liked benefits that a company may provide to its staff all over the world. The majority of the private and government firms in India likewise offer this allowance each year. This allowance is tax-free in India up to a predetermined annual limit. One of the few elements of the law that is the same everywhere in the world is the allowance amount, which is determined by the base amount of a person’s pay. Only the salaried class of taxpayers receives a tax deduction at source depending on the actual tax rates or slab rates they are subject to. Most of their tax for the fiscal year is taken out of their pay income right at the source. For other taxpayers, tax-deductible at source is based on a predetermined rate that may or may not equal their tax obligation for the fiscal year.
Salaried taxpayers may or may not be particularly worried about their salary structuring and specifics of various types of allowances and exemptions available for them even before getting at total gross income since their employers compute their income taxes for tax deduction purposes.
They focus primarily on potential investments that might result in tax benefits. However, understanding the allowances and exemptions offered on such allowances is equally essential for tax planning since it enables individuals to select the appropriate CTC structure and legitimately claims the tax advantage to which they are entitled.
In this blog, we’ll talk about one of these allowances, the transport allowance, and its tax implications.
What is a Transportation Allowance?
Generally, a “transport allowance” is an allowance for transportation purposes. However, according to Section 10(14) of the Income-tax Act, 1961 and Rule 2BB of the Income-tax Rules, the transit allowance may be one of the following:
Allowance is provided to an employee to cover travel costs between his residence and his workplace or area of responsibility.
Amount of the Exemption
Under Rule 2BB and Section 10(14), the travel allowance is exempt.
The exemption amount is as follows:
- Transportation reimbursement for travel between home and work (with effect from FY 2018-19, no such separate transport allowance is allowed) ₹1,600 per month, or ₹19,200 annually.
- For employees who are physically challenged, such as blind, deaf, or dumb, or who have orthopaedic disabilities that affect their lower limbs, there is a transportation allowance for getting from their place of residence to their place of employment. ₹ 3,200 per month, or ₹38,400 annually
- Transportation reimbursement for employees of transportation companies to cover personal expenses incurred while doing such transportation
- The exemption amount must be less than the following: 70% of such an amount, or ₹ 10,000 per month, is an option.
Finance Act 2018 Changes
In place of the monthly transportation allowance of ₹ 1600 and the medical budget of ₹ 15,000, the Finance Act 2018 imposed a standard deduction of ₹ 40,000. This adjustment will be effective starting with the financial year 2018–19. As a result, employees other than those who are physically challenged and those who work for a transport company will no longer be eligible for a separate transportation allowance of ₹ 1,600 per month.
The interim budget for 2019 increased the ceiling from ₹ 40,000 to ₹ 50,000. Learn about the 2019 Interim Budget’s highlights here.
Difference between Transport Allowance and Conveyance Allowance
- An employee of a transport company may receive a transport allowance to help with personal costs or to cover the cost of their commute to work.
- A payment known as a conveyance allowance is given to cover transportation costs incurred while performing official duties.
- Additionally, only the portion of a conveyance allowance corresponding to the actual expense paid is exempt from tax, whereas a predetermined transportation allowance is.
Allowance for Transportation Under the New Tax Regime
The government offers individual and HUF taxpayers a new optional tax structure. There are no deductions or exemptions and flat tax rates under the new tax system. For instance, one choosing the new tax system must use the standard deduction, HRA, or other exemptions. Additionally, the person cannot deduct any investments to reduce taxes. The following tax-exempt allowances are admissible under the new tax system:
- The allowance made by the employer to cover the expense of a transfer or trip. It includes a contribution for travel expenses, including plane flight, train fare, and other related fees.
- Any compensation provided by the employer to cover the regular daily expenses an employee spends due to absence from the customary employment location. The compensation should be for a tour or the time with a transfer. The stipend covers the expenditures incurred by the employee for food and other everyday expenses while travelling.
- Allowance to cover transportation costs incurred while conducting official or profitable employment activities. However, in this instance, the employer is not required to offer the employee a free ride. The travel costs an employee incurs while carrying out official tasks are covered by the allowance.
- Employees with disabilities of the lower extremities who are blind, deaf and dumb, or orthopedically challenged may be eligible to receive a transportation allowance to cover their travel costs. The maximum amount of monthly compensation is ₹ 3,200.
- A regular employee who commutes between their residence and job (other than a disabled employee) is not eligible to receive transportation benefits.
Conclusion
Your ability to avoid paying taxes on your wage is made possible by the transportation allowance. There are different strategies to lessen the tax burden. Check your pay stub to see whether your workplace offers a transportation allowance. If it does, you can claim the tax exemption on the amount you are entitled to and lessen your tax obligation. If you want to achieve such benefits of taxes, contact Vakilsearch.
Frequently Asked Questions
Can an employee use transportation benefits to go between their home and place of employment?
A regular employee who commutes between their residence and job (other than a disabled employee) is not eligible to receive transportation benefits.
Can I ask my company to compensate me for my moving costs tax-free?
You can provide your employer with documentation of relocation costs, such as invoices, and ask for tax-free compensation.
Can an employee ask their company for tax-free medical reimbursement?
There is no longer a tax exemption for medical expenses. A standard deduction will replace the fixed medical reimbursement and transportation allowance beginning in FY 2018–19.
