Conveyance allowance, also called Transport Allowance is an allowance offered to employees of a company through their salary to compensate expenses for their commute from residence to respective workplace location and vice versa. Allowances are generally offered to employees on top of their basic salary component and may or may not be taxable as per the Income Tax Act. In general, conveyance allowance is paid by an employer only if there is no transportation provided by the employer. In case an employer offers office transport, conveyance allowance will not be provided to employees.

How to calculate conveyance allowance?

There is no fixed formula or a pre-defined percentage of basic salary using which you can calculate the conveyance allowance. There is no limit for this allowance. However, Rs 1600 per month or the conveyance allowance component in your salary slip, whichever is lower, is exempted from tax. The exemption under section 10 sub-section 14(ii) of the Income Tax Act and Rule 2BB of Income Tax rule provides for conveyance allowance exemption. Employer can limit the pay under this allowance to Rs. 1600 per month so that it will be fully tax exempted. Any amount paid above the conveyance allowance limit is charged to tax under the head Income from Salaries. The exemption can be claimed by an individual salaried employee.

Special Tax Exemption Cases

  • The exemption limit for orthopedically disabled and blind people is Rs. 3200 per month
  • As per section 10(45), the conveyance allowance offered to members of UPSC or chairman is not charged to tax.

Conveyance Allowance Limit for FY 2019-20 & AY 2020-21

Finance Act, 2018 introduced standard deduction of Rs 40,000 in lieu of transport allowance of Rs 1600 per month and also a medical allowance of Rs 15,000. This change shall take effect from the financial year 2018-19 and accordingly, no separate transport allowance of Rs 1,600 per month is available to employees other than physically challenged employees and employees of a transport business. The limit of Rs. 40,000 has been increased to Rs. 50,000 in the Interim Budget 2019.

However, it may be noted that the Transport Allowance upto Rs. 3,200 pm shall continue to be exempt in the case of an employee, who is blind or deaf and dumb or orthopaedically handicapped with disability of lower extremities.