Conveyance allowance, also referred to as Transport Allowance, is a type of allowance offered by a company or employer to the employees to compensate for their travel from their place of residence to the workplace. Conveyance allowance is only paid by the company if it does not have a transportation service available to the employees. If the company offers transportation services, it does not pay conveyance allowance to employees whether the employees avail the service or not.
Salaried individuals are not required to produce any bills or receipts to claim tax exemption for conveyance allowance. It is paid on top of the basic salary components and it is taxable only if it crosses the tax exemption limit. Currently, the conveyance allowance exemption limit under Section 10 sub-section 14(ii) of the Income Tax Act (1961) and Rule 2BB of Income Tax rule is Rs. 1,600 per month which comes out to be Rs. 19,200 per year. An interesting note here: conveyance allowance offered to UPSC members or the Chairman is not taxable.
Conveyance Allowance Features
Here are a few important features of the Conveyance allowance:
- Conveyance allowance limit is set at Rs. 1,600 per month (~ Rs. 19,200 per year) for all salaried individuals
- Companies that offer transportation services to their employees do not pay conveyance allowance to their employees
- The conveyance allowance can differ based on the employer or designation of the employee but the tax exemption limit is set at Rs. 1,600 per month or Rs. 19,200 per annum
- Salaried individuals do not need to submit bills or receipt to avail conveyance allowance
- It can be grouped with other allowances such as Special Allowance. In this case, if the employer pays a special allowance that is fully taxable, the salaried individual can substitute Rs. 1,600 per month as conveyance allowance and claim tax exemptions
- For an employee that travels frequently, a competent authority can grant a consolidated travelling allowance to the employee. This allowance is granted in lieu of conveyance allowance or other types of travel allowances. The employee cannot draw this travelling allowance during leave, temporary transfer, etc.
In addition to Conveyance Allowance, other types of allowance paid by employers to their employees include:
- House Rent Allowance (HRA)
- Leave Travel Allowance (LTA)
- Dearness Allowance (DA)
- Medical Allowance
- Special Allowance
Some of the common allowances have been discussed here:
House Rent Allowance (HRA): House Rent Allowance is a type of allowance paid by a company to its employees for accommodation expenses. Employees can avail the HRA exemption under section 10 (13A) of the Income Tax Act (1961) in accordance with Rule 2A of Income Tax rules. Salaried individuals need to submit rent receipts as proof to avail the HRA tax benefit. Self-employed individuals do not get HRA exemption but can claim tax benefits under section 80GG. Salaried and self-employed individuals that live in their own house cannot avail the HRA tax exemption.
Leave Travel Allowance (LTA): Leave Travel Allowance is paid by an employer to the employee when the latter travels with their family or alone within the country. An employee can avail the exemption only twice in four years. It is one of the best tax-saving tools based on Section 10 (5) of the Income Tax Act, 1961 with Rule 2B. LTA does not include food, shopping or other expenses incurred during the trip. It is not mandatory to submit documentary proof of travel but the assessing officers can demand it during the assessment.
Dearness Allowance (DA): Originally introduced after World War II, Dearness Allowance helps people deal with inflation. DA is a fixed percentage of the basic salary of an employee where the percentage is dependent on the location of the employee since the cost of living in India is different based on whether the employee lives in a city, town, or village. DA is revised twice a year in January and July. Dearness Allowance is usually paid out to the public-sector employees. It is fully taxable with salary and must be filed in the tax return by a salaried individual in every financial year.
Medical Allowance: This is a fixed allowance that is paid by a company to its employees every month. It is taxable and the salaried individuals can claim tax benefit under medical reimbursement of up to Rs. 15,000 by submitting the necessary bills and documents as proof. If they fail to submit proof of medical bills to support the reimbursement, 30% of Rs. 15,000 becomes the taxable amount that can be reclaimed while filing tax returns. Medical reimbursement comes under Section 80DD of the Income Tax Act (1961). The employer has to pay TDS penalties if he does not deduct TDS on a medical allowance for which the reimbursement has not been claimed.
Special Allowance: Special Allowance is an allowance that is paid to an employee to meet specific work-related expenses and does not fall into any other allowance category. It is exempt from tax up to the extent of the actual expenditure incurred for carrying out duties in an office. There is no upper limit defined for special allowance. These allowances are taxable and paid on a monthly basis to the employees.
Frequently Asked Questions (FAQs):
Q: Can I avail Conveyance Allowance if I do not use the company provided transportation service?
A: No. If the company offers transportation services to its employees, it will not pay conveyance allowance whether the employee avails the service or not.
Q: Can I get a tax exemption on my conveyance allowance?
A: Yes, you can. Irrespective of which tax slab your income belongs to, you can avail a tax exemption of Rs. 1,600 per month or Rs. 19,200 per annum as the conveyance allowance exemption limit set under Section 10 sub-section 14(ii) of the Income Tax Act (1961) and Rule 2BB of Income Tax rule. The tax exemption limit can change over time but currently, it is set at Rs. 1,600 per month for all salaried employees.
Q: How can I calculate my Conveyance allowance to avail tax benefits?
A: Conveyance allowance is paid by the employer as a part of your salary over and above your basic salary to help you meet the expenses for your commute to work. There are no difficult calculations required. You can check the conveyance allowance paid to you in the year and calculate the total amount. The tax exemption limit is set at Rs. 1,600 per month or Rs. 19,200 per annum.
Q: How can I calculate my Taxable income?
A: Once you see your salary slip and calculate your income for the fiscal year also including your variable income (paid to you quarterly or semi-annually), it is easy to calculate your taxable income. Use this formula:
Taxable Income = Gross Salary – [Employee Provident Fund (EPF) Contribution + Conveyance Allowance + House Rent Allowance + Leave Travel Allowance + Medical Bills + Medical Insurance + Tax]
Q: Is there a limit on the conveyance allowance an employer can pay?
A: There is no set limit to the amount of conveyance allowance a company or employer can pay the employees. However, the tax exemption limit is set at Rs. 1,600 per month or Rs. 19,200 per annum under Section 10 sub-section 14(ii) of the Income Tax Act (1961). Irrespective of the tax slab or monthly income, a salaried individual can only avail tax exemption up to Rs. 1,600 per month (~ Rs. 19,200 per year).