Employees allowed to claim I-T exemption on conveyance allowance under new tax regime: CBDT

NEW DELHI: Individuals will be able to claim income tax exemption for conveyance, travel and other allowances given by employers under the new regime that offers lower tax rates, according to a notification issued by the Central Board of Direct Taxes (CBDT) on Saturday.

The apex direct taxes body has notified new rules to enable individuals to claim exemptions for allowance to meet cost of travel, daily expenses on transfer, tour allowance for travel for official purposes to meet the travel and daily expenses, and conveyance allowance for meeting conveyance expenditure incurred in course of performing official duties.

Persons with disabilities – blind, deaf and dumb or orthopedically handicapped employees – can also claim ad hoc exemption of transport allowance of Rs 3,200 per month while computing salaried income. The latest rule prescribes providing transport in such cases as a responsibility of the employer, and hence the tax exemption.


However, the benefit of tax exemption for free meals or non-alcoholic beverages or meal vouchers up to Rs 50 per meal during office hours will not be available to employees opting for the new scheme.

“The notification has rightly exempted allowances in the nature of tour, transfer or conveyance for official purposes, since these are essentially incurred by employees not for their personal benefit, but for discharging their official duties, and therefore expecting employees to pay tax on such amount even under the new scheme would have been unreasonable,” said Shailesh Kumar, partner, Nangia & Co LLP.

The rules prescribing allowances that are exempted will come into effect from April 1, 2021 and shall accordingly apply in relation to the assessment year 2021-22 and subsequent assessment years, said the CBDT.

The new income tax regime, announced by finance minister Nirmala Sitharaman in this year's annual budget, was made available to taxpayers with lower income tax rates on the condition that no deductions or exemptions could be availed, other than the cases where the government explicitly prescribes them.

“The government is right in allowing these allowances since they usually correspond to actual expenses incurred by the employees in the performance of their duties and therefore should be available even in the new regime, but the entire purpose of doing away with allowances/exemptions was to simplify the tax code and go for lower rates... reintroducing allowances selectively will defeat that purpose,” said Amit Maheshwari, tax partner at AKM Global.