Employers offer many allowances to employees in addition to the basic salary. One such allowance is given for conveyance. Let’s understand what this allowance is all about.
Conveyance allowance meaning
Conveyance allowance in salary is paid by the employer to employees for travelling from their home to the workplace and vice versa. It is also known as transport allowance which, in general, means an allowance paid for the purpose of transport. Conveyance allowance is generally offered when the employer does not offer any transport facility for travelling to the workplace to its employee. If the employer provides a transport facility and an employee avails that transport facility no conveyance allowance in salary is paid. Allowance for conveyance in salary is taxable if it exceeds the exemption limit.
Limit of Conveyance Allowance for the Financial Year 20-21 and Assessment Year 21-22
For the financial year 20-21 and Assessment Year 21-22, no limit is provided on the conveyance allowance amount that can be paid by your employer. That being said, there is an exemption limit that can be availed for conveyance allowance under the Income Tax Act, 1961. The following table shows the taxability of conveyance allowance
|Conveyance Allowance for the purpose of commuting between place of residence and place of duty
|INR 19,200 per year/ INR 1,600 per month
|Conveyance allowance for commuting between place of residence to the place of duty for physically disabled or orthopedically handicapped employees
|INR 38,400 per annum/ INR 3,200 per month
|Conveyance Allowance for the employees engaged in transport businesses for personal expenditure during running option transport
|Lower of 70% of such allowance or INR 10,000 per month.
Conveyance Allowance Features
Conveyance allowance is typically paid under the condition that no transportation is provided by the employer. Some of the important features of conveyance allowance are discussed below
- Employers providing transportation facilities to their employees are not required to pay conveyance allowance
- No receipts or bills are required to be furnished by salaried individual employees to depict that they are in receipt of conveyance allowance
- The amount paid to employees as conveyance allowance varies from company to company but the limits of tax exemption are uniform for all the employees
- For salaried individuals, the exemption limit of conveyance allowance is set at Rs 1,600 per month.
Conveyance Allowance Exemption
Subsection 14 of section 10 of the Income Tax Act, 1961, read with rule 2BB of Income Tax rule deals with exemption of conveyance allowance. The exemption can be availed by individual salaried employees. An amount paid above the limit of conveyance allowance would be chargeable to tax under the head income from salaries. Exemption of an amount up to INR 19,200 per annum is applicable under section 10(14)(ii) of the Income Tax Act.
Special cases pf exemption for Conveyance Allowance
There are two special exemption cases in conveyance allowance which are as follows
- Conveyance allowance for blind/deaf/ dumb people and orthopedically handicapped is up to INR 3,200 per month.
- Section 10 subjection 45 provides that the allowance offered to the chairman or members of UPSC is not chargeable to tax.
The method of calculating Conveyance Allowance
The calculation of conveyance allowance is done on the employees’ basic salary. The maximum exemption limit is INR 1,600 per month irrespective of whether the individual falls under the income tax bracket or not. This means that if the employer pays its employee’s conveyance allowance of INR 8,000 monthly (100% taxable), then also you can claim an exemption on conveyance allowance only on INR 1,600. The remaining INR 6400 would be taxable.
The same is applicable for individuals falling under the special conveyance allowance, which is entirely taxable with a higher exemption amount. In the case of individuals who are offered a special allowance, the employees have an option to substitute INR 1,600 from the special conveyance allowance as conveyance reimbursement, claiming tax exemption on it.
There is no specific calculation or formula for calculating conveyance allowance.
Conveyance Allowance allowed for Handicapped people
The conveyance allowance for handicapped people is INR 3,200 per month/ INR 38,400 per annum. The standard deduction of INR 50,000 as announced in the Finance Act, 2018 and revised at the Interim Budget 2019 is not available to physically challenged employees.
Allowed Conveyance Allowance for employees of the Central Government
The Central Board of Direct Tax has recently notified certain amendments in the Income Tax rules allowing the salaried employees to claim an exemption if they opt to apply for lower personal income tax slabs which include exemptions on conveyance allowance extended by the employers.
This new regime is applicable for the income earned from the financial year 2020-21 and is optional. A new subsection has been added to rule 2BB following the regime for implementation of these exemptions. These allowances include allowance granted in order to meet the travelling cost on transfer or on tour, allowance granted to meet the daily charges incurred by the employee on account of absence from the normal place of duty and allowances provided to meet the conveyance expenditure in performance of duty only if the employer does not provide free conveyance to the employee. The notification also provides an exemption to the physically challenged employees on transport allowance with a limit of INR 3,200 per month.
Conveyance Allowance for the Central Government employees
Central Government employees can earn the following amounts as conveyance allowance
|Average monthly commute on the official duty of Central Government employees
|Employees travelling by their own vehicle
|Employees travelling by any other modes
|201 to 300 km
|301 to 450 km
|451 to 600 km
|601 to 800 km
|801 km and above
Consolidated Travelling Allowance
Consolidated travelling allowance means a permanent allowance that is given by a competent authority for monthly travel to a government employee or servant if the duties of such employer servant require them for extensive travelling. Consolidated travelling allowance would be offered for commuting within the employees’ area of duty. Such allowance can be availed for the entire year irrespective of whether or not the employee is present in the headquarters. It is not drawn during temporary transfer, leaves or at the time of joining. The consolidated travelling allowance substitutes various other kinds of allowances for transit in the official limits of Government employee’s duties.
Other types of allowances paid by employers
Employers pay their employee’s various other allowances along with their basic salary, some of which are either fully exempted or fully taxable. Some of the allowances are also partially taxable in the hands of the employee. Let us have a look at other allowances paid by the employer
- House Rent Allowance- partially taxable
- Dearness Allowance- fully taxable
- Leave Travel Allowance- partially taxable
- Overtime Allowance- fully taxable
- Entertainment Allowance- fully taxable
- Compensatory Allowance to judges of High Court and Supreme Court- non-taxable
- Cash Allowance- fully taxable
Various alternative methods to save taxes
While conveyance allowance allows you to claim exemption from your taxable salary income, there are various other ways in which you can reduce your tax liability. These ways are as follows
- Life insurance plans allow efficient tax benefits. The premiums paid are allowed as a deduction from taxable income up to INR 1.5 lakhs under Section 80C. The death benefit paid by the policy is completely tax-free. Moreover, if your premium was within 10% of the sum assured, you can claim tax exemption on the maturity benefit too under Section 10(10A).
- Health insurance plans are also tax efficient. When you invest in a health plan, the premium paid is allowed as a tax-free deduction under Section 80D. The deduction limit is INR 25,000 which increases to INR 50,000 for senior citizens. If you also buy a health plan for your parents, you can claim an additional deduction. The limit of this deduction would also be INR 25,000 or INR 50,000 depending on the age of your parents.
- Contribution to the PPF scheme, NSC, SSY, SCSS, 5-year fixed deposits, etc. also become eligible for tax deduction under Section 80C up to a maximum limit of INR 1.5 lakhs
- The ELSS schemes of mutual funds also allow tax benefits on investments under the provisions of Section 80C
- You can opt for a home loan and move into your dream home. The loan principal that you repay is allowed as a tax-free expense under Section 80C. On the other hand, the interest paid is also allowed as a tax-free expense under Section 24(b) and Section 80EEA. The deduction under Section 80EEA, however, is subject to the fulfilment of some conditions.
So, check your salary to see if your employer offers you any conveyance allowance or not. If the employer does, claim tax exemption on the eligible amount and reduce your tax liability.
A standard deduction of Rs 40,000 was introduced in the Finance Act, 2018 in order to replace the conveyance allowance of Rs 1,600 per month and the medical allowance of Rs 15,000. The limit of standard deduction was further enhanced to Rs 50,000 from Rs 40,000 at the Interim Budget of 2019.
Conveyance Allowance is an allowance paid in order to meet the expenses on conveyance while performing the office duties whereas travelling allowance is an allowance given to employees in order to meet commuting expenses from their residence to office and also to meet personal expenses of the employees of the transportation businesses.
A fixed amount of transport allowance is eligible for deduction under the Income Tax Act irrespective of actual expenditure incurred on transport. On the other hand, conveyance allowance to the extent of actual expenditure which is incurred by the employee can be availed as a deduction.
Yes, reimbursement of relocation expenses can be claimed as an exemption by furnishing the invoices of allocation expenses or any other proof of expenses in order to claim the tax-free reimbursement.
No, if the employer is offering transportation service to its employee then no conveyance allowance will be paid by the employer and no exemption can be claimed under the Income Tax Act.