Travel Allowance: Tax Exemptions Under Different Regimes
Salaried individuals receive various kinds of allowances, which helps them efficiently handle expenditures related to work, house etc. One such allowance is travel allowance. This piece will discuss travel allowance and its tax provisions thoroughly.
What Is Travel Allowance?
Travel allowance, in general, refers to the allowances provided to employees to meet expenses related to travel or for the purpose of transport.
However, travel allowance as mentioned under Section 10(14) of the Income Tax Act, 1961 and rule 2BB can refer to either of the following as travel allowance -
- Allowance offered to employees to cover expenses for commuting between place of residence and place of duty.
- Allowance offered to employees involved in transport business to cover their personal expenses during duty hours for running such transport from one place to another. Here, travel allowance is available only if employees do not receive a daily allowance.
Once the meaning of travel allowance is clear to individuals, let’s find out the exemption limit and other details.
What Is the Exemption Limit on Travel Allowance?
As per Section 10(14) and rule 2BB of the Income Tax Act, 1961, individuals can get an exemption on travel allowance. Take a quick glance at the following table to learn about the exemption limit of travel allowance specified under the Income Tax Act.
| Allowance Type | Exemption Limit |
|---|---|
| Transport allowance to commute from one’s residence to place of duty.* | Limited to the actual expenditure made by the employee |
| Transport allowance to commute from place of residence to place of duty/office for physically challenged employees.** | ₹ 3,200 per month |
| Transport allowance for employees of transport business for covering personal expenditure during the running of such transport | Exemption amount of 70% of such allowance or ₹10,000 per month, whichever is lower. |
**Physically challenged employees –employees who are deaf or dumb or blind or orthopedically handicapped with disability of lower extremities
Individuals can get a fair idea about the exemption limit from the table mentioned above. Now, let’s learn about travel allowance under the new tax regime (FY 2020-21 onwards).
What Is Travel Allowance Under the New Tax Regime (FY 2020-21 Onwards)?
The Government has introduced an optional new tax regime for individuals and HUF from FY 2020-21. As per the new tax regime, there are flat tax rates and deductions and exemptions are no longer available.
For instance, individuals availing of the new tax regime cannot claim exemption on HRA allowance and others.
Further, individuals availing of the new tax regime cannot get a deduction on any kind of tax-savings investment.
Under the new tax regime, individuals can claim the exemptions mentioned below -
- Allowance to cover conveyance expenses spent while performing office duties or duties related to the employment of profit. Here, employers must not offer free conveyance to their employees. In short, this allowance is inclusive of travelling expenses of employees that might have incurred while on official duty.
- Allowance provided by an employer for managing the cost of travelling expenses incurred during tour or transfer. Here, allowance usually involves costs such as rail fare and other transportation expenses.
- Allowance provided by an employer to employees for covering daily expenditures while being absent from their usual place of work. The allowance is available while on a tour and for a certain time of transfer-related journey. This type of allowance includes expenses related to food and other daily expenses.
For salaried individuals who are blind or deaf or dumb or orthopedically handicapped with disability of lower extremities can avail travel allowance exemptions of up to ₹ 3,200 per month. This allowance is available for covering commuting expenditure from home to the workplace.
The details of travel allowance might confuse those who have little knowledge about Conveyance Allowance. Let’s clear the fog of confusion.
How Is Travel Allowance Different from Conveyance Allowance?
Travel allowance refers to those allowances that employers offer to employees to cover travelling expenses from the place of residence to the place of work or covering personal expenses of employees of transport business.
On the other hand, Conveyance Allowance refers to those allowances that employers offer to employees to cover expenses occurring due to official duties.
On the other hand, the actual expenditure incurred on conveyance is allowed for an exemption.
From the above discussion, individuals can gain a thorough understanding of travel allowance, exemption limits and the difference between Travel and Conveyance Allowance. Further, the discussion on the new tax regime (FY 2020-21 onwards) will help salaried individuals claim tax deductions judiciously.
Frequently Asked Questions
How much travel allowance can a handicapped person claim as an exemption annually?
Handicapped personas can claim exemption on travel allowance ₹38,400 per annum.
How to calculate travel allowance?
To calculate travel allowance, subtract the employer-provided allowance amount from the offered exemption limit. For instance, if a handicapped person receives ₹6200 per month as TA, he/she can claim an exemption of up to ₹3200, which means the remaining taxable balance is ₹4000 per month.