Taxability on Conveyance Allowance

 Taxability on Conveyance Allowance

I am receiving an amount from my employer as conveyance allowance. It is taxable?

Why conveyance allowance is granted to an employee

Naturally for supporting him to use the amount for conveyance for reaching at the point of location of office and after office, reach at the point of residence. In other words, it is an amount paid apart from the basic salary so that an employee can use the transportation for reaching to his duty place. It is expected from an employer to provide transportation facilities to the employees so that they can be picked from their residence to the place of duty or office.

“Conveyance Allowance (also known as Transport Allowance) is provided by employer to employee for meeting employee transportation cost from residence to workplace.”

It is a reimbursement or not?

Since the employees are not asked to provide any bill or receipt of the expenses made for transportation, it cannot be considered as a reimbursement.

Whether the Conveyance Allowance is exempt or not?

The exemptions on allowances are mentioned in Section 10 of Income Tax Act. For each exemption, there is need to produce bills / receipts / certificates / affidavits on demand of income tax department or deductors.

Section 10 (14) (i) states that the amount will not form the part of total income related to “any such special allowance or benefit, not being in the nature of a perquisite within the meaning of clause (2) of section 17, specifically granted to meet expenses wholly, necessarily and exclusively incurred in the performance of the duties of an office or employment of profit, [as may be prescribed], to the extent to which such expenses are actually incurred for that purpose”.

Tax on Conveyance Allowance prior to FY 2017-18:

Further Rule 2BB states that any allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office or employment of profit, provided that free conveyance is not provided by the employer.

Now it is clear that the conveyance allowance is exempt but there is limit of this allowance to be exempt i.e. Rs. 1600 per month or Rs. 19,200 per annum. It does not mean that the employer cannot pay more than Rs. 1600 per month. Employers can pay whatever they seem proper but in case, the amount of conveyance allowance is more than Rs. 1600 per month, that excess amount will be taxable in the hands of the employee.

Tax on Conveyance Allowance from FY 2017-18 onwards:

It is important to note that this exemption was up to Financial Year 2017-18 and thereafter, decision was taken to provide Standard Deduction to the salaried persons and make the amount of conveyance allowance fully taxable.

Tax on Conveyance Allowance if New Tax Regime adopted (from FY 2020-21):

In case, any employee opts for the New Tax Regime having flat tax rates without deduction and exemptions. In this case, the person will not get the Standard Deduction which is provided to old tax regime taxpayers; therefore the amount of conveyance allowance will be exempt.

Conveyance Allowance to physically challenged employees:

In case, any employee is physically challenged such as blind or deaf or dumb or orthopedically handicapped then the conveyance allowance will be exempt up to Rs. 3200 per month. This benefit is specially to meet the cost of travelling for the physically handicapped employee as he may face more problems than the ordinary person.

Is there any difference between Transport Allowance and Conveyance Allowance?

The Conveyance Allowance is to ensure convenience of an employee, means it is an allowance to meet the day to day expenses on conveyance in performance of official duty. While the transport allowance is particularly to meet expenses incurred to move from place of residence to place of official duty i.e. transportation expenses.

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