Transport Allowance Tax Relief: Many companies give transport or conveyance allowance in salary to help with travel from home to office or for official work. A lot of people think this amount is always tax-free, but that is not true. For most employees, transport allowance is taxable now. The rule changed after the 2018 amendment, so the usual travel allowance is no longer exempt for everyone.
There is still some relief for specially abled employees. The Income Tax Department’s current guidance says transport allowance up to ₹3,200 per month is exempt for an employee who is blind, deaf and dumb, or orthopedically handicapped with disability of lower extremities. The department also lists transport allowance for employees working in transport business separately.
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The new Limit for Disabled Employees
For Assessment Year 2026-27, disabled employees can still claim the old exemption limit of up to ₹3,200 per month. That is the limit for people filing ITR for FY 2025-26. The disabled group covered here includes people who are blind, deaf and mute, and those with orthopaedic disabilities affecting the lower or upper limbs.
For FY 2026-27 and AY 2027-28, the exemption limit is being raised under the revised income tax rules reported this month. For metro cities, the limit is ₹15,000 plus dearness allowance per month. This applies to cities such as Mumbai, Delhi, Bengaluru, Kolkata, Chennai, and Hyderabad. For other cities, the limit is ₹8,000 plus dearness allowance per month. DA means dearness allowance, which is a cost-of-living payment used to help with inflation.
Gaurav Makhijani of MGA called the change a major tax reform. He said the increase could give eligible employees in metro cities an extra annual tax-free benefit of up to ₹1.42 lakh. He also said similar higher limits have been introduced in some other allowances like meal cards and gifts.
How to Claim it while Filing ITR
In most cases, employers already factor this benefit into TDS while preparing salary details. Then the employee has to enter the amount shown in Form 16 Part B under the “Income from Salary” section in the ITR form. That is the normal way to claim it.
If the employer has already given the tax benefit in salary, or if the benefit is missing from Form 16, the employee should check the CTC break-up in the salary slip. If transport allowance is part of the CTC and the amount is below ₹3,200 per month, the full amount is tax-free. If it is above ₹3,200 per month, only ₹3,200 per month is tax-free for FY 2025-26. This exemption works under both the old and new tax regimes.
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Other small Salary Benefits
There are a few other employee benefits that can still matter under tax rules. Makhijani pointed out that some perquisite benefits, such as official use of motor cars, are available under both tax regimes. Where an employee owns the vehicle and it is used partly for office work and partly for personal use:
• 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
