Many companies provide conveyance allowance as part of an employee’s salary component to cover the travel expenses between home and workplace or for official duties. However, many people may not be aware that transport or conveyance allowance is taxable in the hands of the employee, subject to certain exemptions under the income tax rules.
In the previous years, it was tax-exempt up to certain limit for all employees. But after an amendment in 2018, travel allowance has become taxable. However, for specific employees, the transport allowance received is still exempted from tax up to a certain limit, which has been hiked under the new income tax rules and will be applicable for ITR filing in the financial year 2026-27 (AY 27-28).
Who can still claim tax exemption on transport expenses and what’s the new limit?
Until Assessment Year 2026-27, disabled employees are eligible to claim a transport allowance exemption of up to ₹3,200 per month. This means taxpayers filing ITR for FY 2025-26 can claim exemption only up to this prescribed limit, subject to eligibility conditions.
According to the income tax rules, disabled employees eligible for this higher exemption include individuals who are blind or deaf and mute, as well as those with orthopaedic disabilities affecting the lower or upper extremities.
However, under the revised income tax provisions, the exemption limit available on transport allowance for eligible disabled employees has been increased. Here is the latest exemption threshold:
- For metro cities: The exemption limit is ₹15000 plus dearness per month. This applies to cities such as Mumbai, Delhi, Bengaluru, Kolkata, Chennai, Hyderabad among others.
- For other cities: For employees of other cities (who don’t fall under the definition of metro city), the exemption limit for employees is ₹8000 plus dearness per month.
or DA is a specific cost-of-living adjustment paid to government employees and pensioners to offset the impact of inflation. These exemption limits will be applicable to taxpayers who are filing their ITR in financial year 2026-27 (AY 2027-28).
“The enhancement in transport allowance exemption for specially abled employees is significant tax reform. Increasing the exemption from the existing ₹3,200 per month to ₹15,000 in metro cities and ₹8,000 in non-metro cities could translate into an additional annual tax-exempt benefit of up to 1.42 lakh for eligible employees in metro locations. The move reflects the government’s recognition of rising commuting costs and the need for greater workplace accessibility support,” said Gaurav Makhijani, Managing Partner at MGA.
He also pointed out that a similar increase in threshold is also introduced in other allowances such as meal cards, gift, among others.
How to claim tax exemption on transport allowance in ITR?
In most cases, employers account for the eligible transport allowance exemption while calculating tax deducted at source () from the paycheck. In such cases, employees have to enter the amount mentioned in Form 16 part B in the ‘Income from Salary’ column of their ITR Form, according to ClearTax.
But when an employer has given a tax benefit on transport allowance or forgotten to give the tax benefit in Form 16, you can claim tax exemption in FY 2025-26 by following the below process:
- Check the CTC structure from the salary slip.
- Check whether the amount of transport allowance is part of the CTC.
- If the amount in the CTC structure is less than ₹3,200 per month, the entire travel allowance would be tax-free.
- If the amount in the CTC structure is more than ₹3,200 per month, the tax-free amount would only be ₹3,200 per month.
Taxpayers must note that this exemption is available for employees under both new and old tax regimes.
What other allowances are available for employees?
Though the new tax regime does not offer many traditional and deductions, some perquisite benefits such as official use of motor cars remains available under both regimes, Makhijani said.
He noted that where the employee owns the motor car and it is used partly for official and partly for personal purposes and allowance is paid — a standard deduction as under is available:
• Engine capacity up to 1600cc: ₹5,000 per month
• Engine capacity above 1600cc: ₹7,000 per month
• Driver salary reimbursement: Additional ₹3,000 per month
• Other vehicles (non-car): ₹3,000 per month