Conveyance allowance, also known as transport allowance, is a kind of allowance offered by employers to their employees to compensate for their travel expense to and from their residence and workplace. This allowance is usually offered in addition to the basic salary, and may or may not be taxable under the Income Tax Act of India (depending on how much the employer is offering).
Companies generally offer this kind of allowance in case they do not provide transportation services to their employees. If an employer does offer such facilities, then conveyance allowance will not be paid, regardless of whether an employee has made use of or opted out of the company’s transport service.
The tax exemption limit for conveyance allowance is set at Rs. 1,600 per month, irrespective of the tax bracket a person falls under. If the individual is given a special allowance, which is fully taxable, then he or she can substitute Rs. 1,600 from it as conveyance allowance and claim tax exemption on it.
For example, if a company is offering a special allowance of Rs. 5,000 per month (100% taxable), Rs. 1,600 out of the total of Rs. 5,000 can be allocated as conveyance allowance and tax exemption can be claimed on it. However, it is advisable to first consult with a tax expert before going ahead with claiming tax exemption on conveyance allowance.