Conveyance Allowance: Meaning, Exemption, Limit, Calculation

Allowances are the amounts of money paid by employers to their employees to manage their expenses apart from their basic pay. They can be taxable as well as exempted depending on eligibility and other criteria. One of the major allowances is the Conveyance allowance which pays for the commuting of the employees.

To understand the conveyance allowance in detail continue reading this article, where we discuss the conveyance allowance meaning, tax exemptions, criteria, and calculation of Conveyance allowance.

What is Conveyance Allowance?

This allowance is also known as travel allowance, it is paid to the employees as a means to compensate for the travel expenses incurred by the employees for commuting to the office and back home. Conveyance allowance is only paid if the company does not provide transportation services to the employees. If in case the employer provides transport facilities, conveyance allowances will not be provided to the employees, whether they avail the services or not.

Conveyance under the Salary Section

The Conveyance Allowance is usually a distinct part of the salary structure. It can appear either as a fixed monthly allowance or as reimbursement depending on claims made by the employee.

These allowances are paid apart from the basic pay of the employees and are also subject to taxes beyond their exemption limits.

Conveyance Allowance Eligibility

Those salaried employees who are not provided with any transportation system by the employer are eligible for the conveyance allowance from their organization. However, it is under the discretion of the employer whether to provide this allowance or not, depending on the employee’s position in the company.

Conveyance Allowance Exemptions

Under the Conveyance allowance rules, there are no limits on how much an employer can pay to the employee as it depends on various factors the amount is offered. However, there is a cap on the limit on the exemption amount under the Income Tax Act 1961.

Conveyance Allowance Exemption for AY 2024-25

As per Section 10(14)(ii) the tax exemption of Rs. 1,600 per month which is Rs. 19,200 per annum is the exemption limit applicable for Conveyance Allowance. If in case the conveyance amount paid is more than this exemption limit it will be charged under the Income from Salaries header on the excess amount.  This exemption can be claimed by any individual salaried employee.

When the conveyance allowance is below the exemption limit, the tax exemption is determined by comparing the allowance and the actual travel expenses. Here, the exemption would be limited to the lower of the two amounts. 

Conveyance Allowance Exemption in New Tax Regime

This travel allowance is also allowed for deduction under the New Tax regime of India. This allowance is offered to the employees specifically for performing office duties hence it is eligible for tax deductions.

It is necessary to note that, in the new tax regime certain allowances are removed from the old tax regime but conveyance allowances have remained and can still be claimed by the taxpayers.

Conveyance Allowance Special Considerations

The Income Tax Act has provisions for blind or physically challenged individuals whereby they can get a higher exemption limit on conveyance allowance. These types of individuals can claim the exemption of ?3,200 in a month totaling to ?38,400 in a year.

In addition, there is a complete tax exemption on conveyance allowance for members of the Union Public Service Commission (UPSC) as per Section 10(45) of the Income Tax Act. 

Is Conveyance Allowance Taxable?

Yes, the Conveyance allowance is subject to tax, It can be subject to two conditions:

1. If the conveyance allowance exceeds the exemption limit of Rs.1600/month, the excess allowance above the exemption limit is subject to taxation under the tax slab.

2. When the conveyance allowance is below the exemption limit and the actual travel expenses are lower than the allowance received, the difference between the allowance and the actual expenses will be subject to tax. Only the actual expenses can be claimed as tax-exempt.

Read our latest articles “How to Save Tax” and “Financial Regulatory Bodies in India” to learn more about tax and salary

How to Calculate Conveyance Allowance?

Specifically, there is no set formula to calculate the conveyance allowance because employers can provide any amount as an allowance for their transportation. But that being said, the Income Tax Act provides only Rs. 1,600 as an exemption for regular employees, and the remaining amount will be taxed under the heading ‘income from salaries’.

To understand the calculation of Conveyance allowance better, let's understand this with the help of an example based on the prior mentioned conditions.

Scenario 1: Allowance exceeds the exemption limit

- Conveyance allowance received: Rs. 2,000 per month

- Exemption limit: Rs.1,600 per month

Since the allowance exceeds the exemption limit, the excess Rs. 400 (Rs. 2,000 - Rs. 1,600) will be taxable, while Rs. 1,600 is tax-exempt.

Scenario 2: Allowance is below the exemption limit, and travel expenses are lower

- Conveyance allowance received: Rs. 1,400 per month

- Actual travel expenses: Rs. 1,000 per month

In this case, since the travel expenses are lower than the allowance, only Rs. 1,000 is tax-exempt, and the remaining Rs. 400 (Rs. 1,400 - Rs. 1,000) will be taxable.

Conclusion

Conveyance allowance is a valuable benefit that helps cover commuting costs and can offer tax relief under certain conditions. Understanding these rules is essential for effective tax planning, ensuring employees can maximise their benefits while minimizing their tax liabilities. As tax regulations evolve, staying informed will help employees make smarter financial decisions.

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