Transport allowance is an allowance provided by the employer to their employees for expenses related to commuting between their place of residence and place of work.
Earlier, the Income Tax Act provided specific exemptions for transport allowance under certain conditions. However, after the introduction of new tax regime under Section 115BAC, the exemption for transport allowance has undergone some changes.
Let us dive more into this and understand this in the simplest way.
Key Takeaways
| Taxability | TA is fully taxable under the head "Income from Salaries" unless specific exemptions apply. |
| Exemption for General Employees | No separate TA exemption since FY 2018-19 as it has been replaced by a standard deduction of Rs. 50,000 annually. |
| Exemption for Physically Challenged | Rs. 3,200 per month exempt for blind, deaf, dumb, or orthopedically handicapped employees. |
| Budget 2018 Impact | TA and medical allowance exemptions merged into a standard deduction (Rs. 50,000 from FY 2019-20). |
Taxability of Transport Allowance under the Income Tax Act
Under section 10(14) of the Income Tax Act, Transport allowance granted by an employer to an employee is generally taxable.
However, an exemption is available only in specific cases.
In the case of employees who are blind, deaf and dumb or orthopedically handicapped, a transport allowance exemption is allowed up to INR 3,200 per month for commuting between residence and workplace, as per Rule 2BB.
Thus, it can be said that for such employees as well, transport allowance is partially exempt and not full exempt/taxable.
Any amount received beyond 3,200 p.m. will be fully taxable in the hands of the employee.
However, for all other employees, transport allowance is fully taxable but a standard deduction of INR 50,000 per annum is available under section 16(ia) instead of transport allowance exemption.
Earlier provisions of Transport Allowance – What has changed?
Up to AY 2018-19, (before AY 2019-20) under section 10(14) read with Rule 2BB:
All salaried employees (general category) were allowed an exemption of INR 1,600 per month for transport allowance.
What changed after AY 2019-20?
Finance Act 2018 introduced Standard Deduction under section 16(ia) of INR 40,000 (later increased to INR 50,000 from AY 2020-21 onwards)
After this amendment
- Transport allowance exemption of INR 1600 p.m. was withdrawn for general employees.
- Instead, standard deduction of INR 50,000 per annum was introduced for all said employees.
Exception
Handicapped employees continued to get exemption of INR 3,200 per month of Transport allowance u/s 10(14) read with rule 2BB.
*Even under the New Tax regime (Section 115BAC), the provisions related to transport allowance remains unchanged for general employees. However handicapped employees can still avail partial exemption as explained above. *
*No new circular issued in FY 2024-25 regarding transport allowance.*
Impact of Budget 2024 on Transport Allowance
- No major changes were announced in Budget 2024 regarding Transport Allowance.
- The exemption limits remain the same as previous years.
- However, salaried employees need to choose between the old tax regime and new tax regime carefully.
Calculation for understanding
| Particulars | Normal employee | Handicapped |
| Transport allowance received | INR 3500 per month | INR 3500 per month |
| Exempt | NIL | 3200 per month |
| Taxable portion | 3,500 | 300 |
Conclusion
- Normal employees don’t get exemption in either regime.
- Handicapped employees enjoy higher exemption in both regimes.
- Transport allowance is provided only for commuting between office and home – not for any other travel.
FAQs
- Is Transport allowance and Travel allowance different?
Ans. Yes, transport allowance and travel allowance are different in Income Tax. Transport allowance is fixed monthly amount given for daily travelling to and from office.
Travel allowance is given when an employee travels for office work outside their regular place of duty. (Fully exempt if travel is for office work and appropriate expense proof submitted otherwise fully taxable). - Is Transport allowance and Leave Travel Perquisite (LTA) different?
Yes, Leave Travel Perquisite (LTA) and Transport Allowance are completely different concepts under Income Tax.
LTA is for travel expenses during employee’s leave, it is perquisite and not allowance.
Transport allowance is for daily travel from office to home and home to office. - Can I claim transport allowance in New Tax Regime?
No, under the New Tax Regime (Section 115BAC), general employees cannot claim exemption.
However, handicapped employees can.
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