What Is Conveyance Allowance?

Introduction

Companies require employees to travel to the office daily or for various business-related work. However, as the expenses incurred on travelling are not personal but for the company, the company is liable to reimburse the employee for all the incurred expenses. The reimbursed amount is called conveyance or travelling allowance. 

A conveyance allowance is a payment or reimbursement made by an employer to their employees to cover their transportation costs incurred while travelling to and from work or for work-related purposes. It is usually a fixed amount provided monthly to employees to help them cover commuting expenses, such as fuel, public transportation, or other modes of transportation.

The amount of the conveyance allowance may vary depending on the employer's policy, the distance between the employee's residence and the workplace, and the mode of transportation used.

Conveyance Allowance Exemption

In India, the government has set a conveyance allowance exemption at Rs 1,600 per month, which calculates to Rs 19,200 per annum. The exemption is set at this amount irrespective of the taxpayer's tax bracket, meaning that every central government employee or an eligible private corporation employee can reduce the tax liability without factoring in their tax slab. 

Some companies may pay a conveyance allowance higher than Rs 1,600 per month. However, any amount higher than Rs 1,600 paid by an employer as a travelling allowance is added to the taxable income of the receiver and is taxed as per the applicable tax slab. 

For example, suppose a company has paid Rs 5,000 to an employee for the expenses incurred by the employee on travelling for office work. As the upper limit for conveyance allowance is Rs 1,600, the employee can only claim a tax exemption of Rs 1,600 while paying taxes.

As per the Income Tax Act, 1961, the employee is liable to pay taxes as per the applicable tax slab on the remaining Rs 3,400. Hence, the conveyance allowance may vary from company to company, but the exemption limit is set at Rs 1,600 per month. 

Special Exemptions and Provisions

Here are some special exemptions and provisions related to the travelling allowance. 

●    The Indian government has set an increased exemption of Rs 3,200 per month for central government employees who are visually impaired or physically disabled. The exemption applies to both government and private organisations. 

●    The government has provided a special exemption to UPSC members, who do not have to pay taxes on conveyance allowances.
 

Travel Allowances For Central Government Employees

The central government of India has created a framework to reimburse the employees defined as central government employees for the expenses they make on travelling. In India, conveyance reimbursement is active, and the government calculates the exemption based on the basic salary of the central government employee.

The government exempts a certain sum, and the Central Board of Direct Taxes (CBDT) monitors the process. The Indian government and the Income Tax Department have defined the rules regarding travelling allowance exemption under Section 10(14) (ii) of the Income Tax Act 1961 with Rule 2BB of extant IT rules. 

As per the sections, the Indian government allows a monthly exemption of Rs 1,600 or Rs 19,200 per annum to the central government employees. The exemption means that the central government employees can provide travelling proof to the respective government department, and they shall provide the applicable reimbursement and salary. 

The latest allowances are as follows:

Recent Developments in Laws Governing Conveyance Allowance

Before 2015, the maximum travelling allowance sanctioned by the Indian government was Rs 800 per month or Rs 9,600 annually. However, the Indian government raised the ceiling for the total exemption to Rs 1,600 monthly or Rs 19,200 annually.

Furthermore, in 2022, the Indian Finance Minister introduced two new separate Income Tax regimes; the old and new tax regimes. Under the latest tax provisions, central government employees could avail of lower tax slabs by claiming IT relief on conveyance reimbursement or allowance.