Everything About Conveyance Allowance

As an employer or HR manager, you might be bogged down about how conveyance allowance works and how much money should be budgeted for it. Employers often offer numerous allowances to the company’s employees.

Offering conveyance allowance in salary is only necessary if the company does not provide transport facilities to the employees. If the company, however, offers a transport service, conveyance allowance is not paid, irrespective of whether the employees make use of the facility or not.

What is a conveyance allowance?

Conveyance allowance, sometimes also called transport allowance (not very accurately), is one that is offered to employees in order to remunerate them for travel expenses from and to their home and office. This allowance is ideally offered over and above one’s basic salary. Also, it may be taxable or not under the Income Tax Act of India. The tax bracket depends on how much conveyance reimbursement you offer.

Conveyance allowance exemption

There is neither a restriction nor a limit on the conveyance allowance offered to employees. There is, however, a restriction on the tax exemption under the Income Tax Act of India. Under Section 10(14) of the Income Tax Act and Rule 2BB of Income Tax Rules, the overall conveyance allowance exemption limit is INR 1,600 monthly (or, INR 19,200 annually). Before April 2015, the conveyance allowance income tax exemption limit was INR 800 monthly (or, INR 9,600 annually). In the 2015 Budget, these exemption limits were raised in order to reduce the tax imposition on middle-class taxpayers.

Some special cases of exemption

The conveyance exemption limit for blind or orthopedically handicapped individuals is INR 3,200 monthly.
Under Section 10(45), UPSC members’ conveyance allowance does not incur tax.

How is the taxation conveyance allowance calculation done?

Conveyance allowance calculation itself is done on the basic salary. However, the tax limit for exemption is set at INR 1,600 monthly, regardless of whether the employee falls under the tax bracket. This means that if an organization offers an allowance of INR 5,000 monthly (100% taxable), then tax on conveyance exemption can only be claimed on INR 1,600 of the INR 5,000.

This is also applicable for individuals offered special allowance that is fully taxable. The employee can then substitute INR 1,600 from this special conveyance as conveyance reimbursement, thus claiming tax exemption on it.

Is the conveyance allowance and transport allowance different?

Broadly speaking, there is no difference between the two types of allowances. However, for bigger companies that may offer all its employees an allowance to travel from and to the office, they may also pay some other employees for other business-related travel endeavours, like meetings or conferences. In such cases, employers like to differentiate between these two types of allowances. In these circumstances, transport allowance becomes the allowance offered to meet expenses of two-way commute between office and residence. And, conveyance allowance becomes the allowance offered to other employees to meet the expense of conveyance for official activities or purposes.

Conveyance allowance for central government employees

The conveyance allowance rules are different for those working in government offices. All government employees, travelling for work, are often granted an allowance. This allowance substitutes other travel allowances during their official transit within the individual’s limits of duty. Government employees can also draw a permanent travelling allowance for an entire year-round, even in the immediate absence of the signing authority.

However, during instances of leave or temporary transfer, they will not be able to draw the allowance unless expressly mentioned in the duly signed rules. Here is a break-up of conveyance allowance for central government employees according to the conveyance allowance rules:

Other types of allowance employers pay

Conveyance allowance is only of the many types of allowances offered by companies. Some others are as follows:

• Special Allowance
• House Rent Allowance (HRA)
• Leave Travel Allowance (LTA)
• Medical Allowance
• Dearness Allowance (DA)

Changes because of Finance Act, 2018

The Finance Act of 2018 introduced a standard deduction of INR 40,000 to replace the conveyance allowance of INR 1,600 monthly as well as the medical allowance of INR 15,000. Having taken effect in FY 2018-19, this change did away with a separate monthly conveyance allowance of INR 1,600. This conveyance allowance deduction ensures that the allowance is now only offered to employees who are neither physically challenged nor are employees belonging to a business in transportation.

This limit of INR 40,000 was further revised and increased to INR 50,000 at the Interim Budget 2019.

Important features of conveyance allowance

Some important features of the conveyance reimbursement or allowance are as follows:

• Conveyance allowance in salary can differ from one company to another; the tax exemption limit remains uniform at INR 1,600 monthly
• Companies making transportation available to their workforce don’t provide conveyance reimbursement
• Employees don’t need to provide receipts or bills to be eligible for conveyance allowance in salary
• This allowance can be coupled with other such allowances, as the employer seems fit

This article highlights how conveyance allowance limit, conveyance allowance deduction, and conveyance allowance percentage, among other things, is calculated and executed. For information on other such allowances of exemptions, watch this space.