One of the most common allowances granted by an organisation to its employees in most countries of the world is conveyance allowance. The provision is active in India, too; most private firms and publicly-held organisations grant this sum each year. Travel allowance is another name used to describe this grant.
Such an allowance is always calculated on the basic salary of an employee. This feature is one of the few commonalities that bind this law across the world.
In India, this allowance is tax-exempt to a certain sum each year. Salient features of this grant fall under the ambit of the CBDT (Central Board of Direct Taxes) which can alter existing rules and conveyance allowance limits periodically.
The CBDT is a statutory body and acts under the powers granted to it by the Central Board of Revenue Act, 1963. It reports to the Central Revenue Department.
Defining Conveyance Allowance
The allowance is paid to an employee to compensate for the travel they have to undertake from their residence to the workplace.
The amount payable as an allowance depends on how far an employee has to travel, and the modes of transportation used. The greater the distance that has to be covered by the employee, the higher the amount payable as conveyance allowance.
It must be borne in mind that some organisations arrange for their own transportation facilities that take their employees to and from their workplace and residence. Such organisations do not pay any extra allowance for conveyance.
All firms that pay such an allowance do so over and above an employee’s basic salary component.
Conveyance Allowance Exemption
Beyond a specified threshold, this allowance is taxable. These limits are governed by rules set down under Section 10(14) (ii) of the Income Tax Act of 1961 plus Rule 2BB of extant IT rules.
Before 2015, the maximum amount that would not draw any tax was set at Rs. 800 each month or Rs. 9,600 a year. After April 2015, the Union Government raised the ceiling for such allowances starting from FY 2015-16. This was declared in the 2015 Union Budget and later passed as a law by both Houses of the Parliament.
The current conveyance allowance exemption is Rs. 1,600 each month or Rs. 19,200 a year. As is obvious, it is double the previous limits set.
The revised rate of this allowance was introduced to alleviate the tax load borne by huge sections of salaried, middle-class Indians each year.
It must be noted that an employee does not need to provide any documents, receipts, pay-slips or any other proof that she/he has received conveyance allowance from employers. The IT Department will automatically consider the Rs. 1,600 limit each month- or Rs. 19,200 every year- when calculating tax liabilities for salaried individuals.
Special Exemptions and Provisions
There are provisions in place which grant a higher level of exemption to certain individuals. The categories include the following –
- Employees who are visually impaired or otherwise physically handicapped, conveyance allowance deduction is set at Rs. 3,200 each month. This relief is applicable regardless of whether the organisation is operated privately or publicly.
- Under Section10 (45) of the Income Tax Act, no UPSC member is liable to pay tax on conveyance allowance.
Travel Allowances on Central Government Employees
In mid-2017, the Ministry of Finance released a revised list of allowances and grants for Central Government employees. This was linked directly to the implementation of the 7th Pay Commission or 7 CPC.
While there are still some persisting issues regarding the 7 CPC, especially in the Armed Forces, HRA and travel allowance levels for all Central employees were modified.
However, many states still pay their employees under the provisions of the 6th Pay Commission. Thus, there is some difference between conveyance allowance provisions between Central cadre and State cadres.
Uttar Pradesh was one of the first states to implement and restructure all emoluments under the 7 CPC.
Given below are the latest allowances for Central Government employees.
|Average distance covered each month when on duty||Allowance for using personal conveyance like cars||Allowance for all other travel modes|
|201 to 300 km||Rs. 1,680||Rs. 556|
|301 to 450 km||Rs. 2,520||Rs. 720|
|451 to 600 km||Rs. 2,980||Rs. 960|
|601 to 800 km||Rs. 3,646||Rs. 1126|
|Any distance greater than 800 km||Rs. 4,500||Rs. 1276|
For Government employees who have to travel extensively, there is also a provision of a consolidated travelling allowance. Unlike other forms of this grant, a consolidated amount can be drawn around the year.
Recent Developments in Laws Governing Conveyance Allowance
In the Union Budget of 2020, the Central Government laid out two separate Income Tax regimes. Under these latest provisions, any employee who wishes to avail lower tax slabs can now claim IT relief on conveyance allowance.
These new laws were proposed and put into action by the Honourable Finance Minister. Any salaried individual can now save some extra money by opting for the new tax slabs. Under Section 115BAC of the IT Act, salaried persons can forego their conveyance allowance, among a number of others, and can take advantage of reduced tax outflow.
Several additions to this new dual-slab IT Act did not come to pass as 2020’s Winter Parliament session was cancelled. It is estimated that the same will be taken up in 2021’s Budget session.