If you are a salaried employee trying to make sense of your payslip, understanding transport allowance under the new tax regime is more important than ever.
Many employees still assume that transport or conveyance allowance can be claimed as a tax-free salary benefit, just as it could under the old tax regime in certain situations. However, the rules have changed significantly under the new regime, and most allowance exemptions available under the old regime are no longer available.
For most employees, transport allowance received as part of salary is taxable under the new regime. However, certain specific provisions, including the tax treatment applicable to employees with disabilities, require separate consideration.
In this guide, we explain exactly how transport allowance is treated under the new tax regime, which exemptions are available under the old regime, what changes for employees with disabilities, and how you can factor these rules into your overall tax planning for FY 2025-26.
What Is Transport Allowance and Why Does It Matter?
Transport allowance is a component of salary that an employer may provide to help cover an employee’s commuting or transportation expenses. It may appear separately in the salary structure or be included within another allowance or salary component.
Its tax treatment has changed over the years. A common misconception is that all salaried employees can claim a tax exemption for a fixed transport allowance. That is no longer the case.
Understanding how transport allowance is treated under the old and new tax regimes can help you avoid incorrect tax calculations and make better decisions about your salary structure.
How Transport Allowance Was Treated Under the Old Regime
Before FY 2018-19, salaried employees could claim a transport allowance exemption of up to Rs. 1,600 per month, or Rs. 19,200 per year, for commuting between their residence and workplace.
However, this general exemption was effectively withdrawn from FY 2018-19 when the government introduced the enhanced standard deduction for salaried employees and pensioners. Therefore, the Rs. 1,600 per month exemption should not be treated as a currently available benefit under the old tax regime.
There is, however, a separate provision for employees with disabilities. Under Rule 2BB, an employee with a specified disability can claim an exemption for transport allowance of up to Rs. 3,200 per month, or Rs. 38,400 per year, subject to the applicable conditions.
This distinction is important because the general transport allowance exemption and the disability-related transport allowance are governed by different rules.
Transport Allowance Under the New Tax Regime: The Core Rule
Here is the most important point to remember: for most salaried employees, a transport allowance received as part of salary is fully taxable under the new tax regime.
However, this is not because the new regime removed the old Rs. 1,600 per month exemption. That general transport allowance exemption had already been withdrawn from FY 2018-19 when the standard deduction for salaried employees was introduced.
Therefore, employees should not assume that a separate transport allowance of Rs. 1,600 per month is currently tax-free under either regime.
The new tax regime does remove or restrict many allowance exemptions that remain available under the old regime. If your salary structure includes a taxable transport or conveyance allowance, the amount is generally included in your taxable salary under the new regime.
There is an important exception for certain employees with disabilities. The transport allowance exemption available under Rule 2BB, subject to the prescribed conditions, is treated differently and should be considered separately when comparing the two regimes.
Why Did the Tax Treatment Change?
The government’s objective behind the new tax regime was to simplify the tax system by reducing the number of exemptions and deductions available to taxpayers. Instead of relying on multiple salary exemptions, taxpayers receive the benefit of lower slab rates and a simpler tax structure.
For salaried individuals and pensioners, the new regime provides a standard deduction of Rs. 75,000 for FY 2025-26. This was increased from Rs. 50,000 under the new regime from FY 2024-25 onwards.
Therefore, when evaluating transport allowance under the new regime, do not look at the allowance in isolation. Compare the overall tax liability under both regimes, including the standard deduction and any other exemptions or deductions you may legitimately claim.
5 Must-Know Rules About Transport Allowance in the New Tax Regime
Rule 1: The Rs. 1,600 Monthly Exemption Is No Longer Available
A common misconception is that salaried employees can claim a transport allowance exemption of Rs. 1,600 per month under the old regime and that this benefit disappears only when they choose the new regime.
That is not correct.
The general Rs. 1,600 per month transport allowance exemption was withdrawn from FY 2018-19 when the standard deduction for salaried employees was introduced. Therefore, a regular transport allowance received for commuting between home and the workplace is generally taxable under both regimes.
For example, if your employer includes Rs. 2,000 per month as a regular transport allowance in your salary, the Rs. 24,000 received during the year is generally taxable. You cannot claim the old Rs. 1,600 per month exemption.
Rule 2: Employees With Disabilities Have a Separate Provision
There is an important distinction for employees with specified disabilities.
Under Rule 2BB, transport allowance granted to an employee who is blind, deaf and dumb, or orthopedically handicapped with a disability of the nature and extent prescribed under the rules may qualify for an exemption of up to Rs. 3,200 per month, subject to the applicable conditions.
However, this exemption is not available under the new tax regime. Therefore, an eligible disabled employee who wants to claim this particular allowance exemption would generally need to consider the old tax regime.
This is an important point because the disability-related provision should not be confused with the general Rs. 1,600 per month transport allowance that was withdrawn from FY 2018-19.
Rule 3: The Rs. 75,000 Standard Deduction Is Available Under the New Regime
The new tax regime provides a standard deduction of Rs. 75,000 to salaried individuals and pensioners for FY 2025-26.
This is a separate benefit and should not be described as a direct replacement for the old Rs. 1,600 per month transport allowance exemption. The general transport allowance exemption had already been withdrawn before the new regime became the default.
When comparing the two regimes, consider the standard deduction along with all other deductions and exemptions that you are eligible to claim under the respective regime.
Rule 4: Official-Duty Travel Is Different From Daily Commuting
There is an important distinction between a regular transport allowance for commuting and an allowance or reimbursement provided for expenses incurred while performing official duties.
For example, an employee may travel to a client location, another office, or another work site as part of their employment. Amounts paid or reimbursed specifically to meet expenses incurred in the performance of official duties may qualify for exemption under the applicable provisions of Section 10(14), subject to the prescribed conditions.
This is different from a fixed monthly transport allowance provided simply to cover an employee’s journey between home and the regular workplace.
Therefore, do not assume that every amount described as “conveyance” or “travel” by an employer is automatically tax-free. The purpose and conditions of the payment matter.
Rule 5: Your Regime Choice Can Affect TDS, but TDS Does Not Permanently Lock You In
The new tax regime is the default regime for TDS purposes unless an eligible employee communicates their choice of the old regime to the employer.
If you choose the new regime, taxable transport allowance is included in the salary calculation unless a specific exemption applies. Your employer will calculate TDS accordingly.
However, the regime used by your employer for TDS purposes does not permanently determine your final tax liability. A salaried individual without income from business or profession can generally choose the appropriate regime while filing the Income Tax Return, subject to the applicable rules.
Therefore, if you believe the old regime is more beneficial because you qualify for deductions or exemptions that are unavailable under the new regime, compare the final tax liability under both regimes before making your decision.
Old Regime vs New Regime: Transport Allowance at a Glance
| Parameter | Old Tax Regime | New Tax Regime |
|---|---|---|
| General Transport Allowance Exemption | Not available since FY 2018-19 | Not available |
| Transport Allowance for Eligible Employees With Disabilities | Up to Rs. 3,200 per month, subject to conditions | Not available |
| Conveyance/Travel for Official Duty | Exemption may be available subject to prescribed conditions | Exemption may be available subject to prescribed conditions |
| Standard Deduction | Rs. 50,000 | Rs. 75,000 |
| HRA Exemption | Available, subject to conditions | Not available |
| Section 80C Deduction | Up to Rs. 1.5 lakh | Not available |
| Default Regime | No | Yes, subject to applicable rules |
The key point is that the general Rs. 1,600 per month transport allowance exemption should not be included in an old-regime calculation. It was withdrawn from FY 2018-19 when the standard deduction was introduced.
A separate exemption of up to Rs. 3,200 per month may apply to eligible employees with specified disabilities under the old regime, subject to the prescribed conditions. This exemption is not available under the new regime.
A Practical Indian Example: Rahul’s Salary and Tax Calculation
Let us look at a practical example to understand the difference. Rahul works as a marketing executive in Mumbai and has a gross salary of Rs. 8 lakh per year. His salary structure includes a basic salary of Rs. 4.8 lakh, HRA of Rs. 1.8 lakh, and a regular transport allowance of Rs. 24,000 per year, or Rs. 2,000 per month.
For simplicity, assume Rahul satisfies the conditions for an HRA exemption of Rs. 80,000 under the old regime and has eligible Section 80C investments of Rs. 1.5 lakh.
Under the Old Tax Regime
- Gross salary: Rs. 8,00,000
- Less: HRA exemption: Rs. 80,000
- Less: Standard deduction: Rs. 50,000
- Less: Section 80C deduction: Rs. 1,50,000
- Regular transport allowance exemption: Nil
- Net taxable income: Rs. 5,20,000
The Rs. 24,000 regular transport allowance is included in taxable salary because the general Rs. 1,600 per month exemption is no longer available.
Under the New Tax Regime
- Gross salary: Rs. 8,00,000
- Less: Standard deduction: Rs. 75,000
- HRA exemption: Not available
- Section 80C deduction: Not available
- Regular transport allowance exemption: Not available
- Net taxable income: Rs. 7,25,000
Rahul therefore has a lower taxable income under the old regime because he qualifies for HRA and Section 80C benefits. However, taxable income alone does not determine which regime is better. The new regime has a different slab structure and may still produce a competitive or lower final tax liability depending on the applicable financial year and Rahul’s complete income profile.
The important lesson is that transport allowance should not be evaluated in isolation. The correct comparison should include the standard deduction, HRA, Section 80C, other eligible deductions, and the applicable tax slabs under both regimes.
How to Decide Which Regime Works Better for You
The transport allowance question is just one piece of the tax regime puzzle. The right choice depends on your complete income, salary structure, deductions, exemptions, and financial circumstances.
Here are five practical steps to help you decide:
1. List All Your Eligible Exemptions and Deductions Under the Old Regime
Start by listing the benefits you can actually claim under the old regime. These may include HRA exemption, LTA exemption, Section 80C investments, Section 80D health insurance premiums, home loan interest, eligible NPS contributions, and other applicable deductions.
Do not include the general Rs. 1,600 per month transport allowance exemption because it was withdrawn from FY 2018-19. If you are an eligible employee with a specified disability, separately check whether the transport allowance exemption of up to Rs. 3,200 per month applies to you.
2. Calculate Your Taxable Income Under Both Regimes
Calculate your taxable income under the old regime after applying the deductions and exemptions you are actually eligible for.
Then calculate your taxable income under the new regime after applying the benefits that remain available, including the Rs. 75,000 standard deduction for eligible salaried individuals and pensioners.
Do not assume that every deduction available under the old regime is automatically available under the new regime.
3. Compare the Actual Tax Payable, Not Just Taxable Income
A lower taxable income under the old regime does not automatically mean a lower tax liability. The new regime has a different slab structure with lower rates across several income ranges.
The correct comparison is the final tax payable under each regime, after applying the relevant slabs, rebate, surcharge where applicable, and 4% Health and Education Cess.
4. Consider Your Existing Financial Commitments
If you already claim substantial benefits such as HRA, home loan interest, Section 80C investments, eligible health insurance deductions, or other old-regime benefits, the old regime may be worth considering.
On the other hand, if you have relatively few deductions and prefer a simpler tax structure, the new regime may be more suitable.
Do not make investments solely because they create a tax deduction. First determine whether the investment fits your financial goals, risk profile, and time horizon.
5. Inform Your Employer About Your Preferred Regime for TDS
Once you have compared both options, communicate your preferred regime to your employer or payroll team so that your TDS can be calculated appropriately during the financial year.
Remember that the regime selected by your employer for TDS purposes does not necessarily determine your final tax liability. An eligible salaried individual without business or professional income can generally make the final regime choice while filing the Income Tax Return, subject to the applicable rules.
The best approach is simple: calculate both, compare the final tax liability, and choose based on your actual numbers rather than assumptions about a single allowance.
Common Mistakes Salaried Employees Make with Transport Allowance
Mistake 1: Assuming the Old Rs. 1,600 Monthly Exemption Still Applies
Many employees still believe that a regular transport allowance of Rs. 1,600 per month is tax-free. This is an outdated rule.
The general Rs. 1,600 per month transport allowance exemption was withdrawn from FY 2018-19 when the standard deduction for salaried employees was introduced. Therefore, a regular transport allowance for commuting is generally taxable and should not be treated as a separate tax-free benefit.
The new tax regime also does not provide a general exemption for such transport allowance.
Mistake 2: Not Reviewing the Salary Structure After Switching Regimes
If you switch to the new tax regime, it is worth reviewing your salary structure with your employer or HR team.
Several exemptions that may be available under the old regime are not available under the new regime. Therefore, simply carrying forward a salary structure designed around old-regime exemptions may not provide the same tax benefit.
However, salary restructuring should not be done solely for tax reasons. Consider the overall impact on your salary, benefits, retirement contributions, and other employment terms before making changes.
Mistake 3: Confusing Reimbursement With a Fixed Allowance
This is an important distinction.
A genuine reimbursement or allowance provided specifically to meet expenses incurred while performing official duties may qualify for tax exemption subject to the applicable provisions and conditions.
A fixed monthly allowance provided simply to cover an employee’s regular commute between home and the workplace is different and is generally taxable.
Therefore, do not assume that calling a payment “conveyance,” “travel,” or “transport” automatically makes it tax-free. The purpose and conditions of the payment determine its tax treatment.
Mistake 4: Not Comparing the Two Regimes Before Making a Decision
Many employees choose a tax regime based on a single benefit without calculating their complete tax liability.
Instead, compare both regimes using your actual salary, HRA, home loan interest, Section 80C investments, Section 80D eligibility, NPS contributions, and other applicable deductions or exemptions.
Making the comparison early in the financial year can also help your employer calculate TDS more accurately throughout the year.
Should You Switch Back to the Old Regime for the Transport Exemption?
Not because of the general transport allowance exemption alone.
The commonly quoted Rs. 19,200 annual exemption relates to the old Rs. 1,600 per month transport allowance provision, which was withdrawn from FY 2018-19. Therefore, switching to the old regime today does not restore this general exemption.
The decision should instead be based on your complete tax position. The old regime may be worth considering if you qualify for substantial benefits such as HRA exemption, Section 80C deductions, eligible home loan interest, Section 80D deductions, or other exemptions that are unavailable under the new regime.
For employees with relatively few deductions, the new regime may provide a lower overall tax liability because of its slab structure and Rs. 75,000 standard deduction for eligible salaried individuals and pensioners.
The key takeaway is simple: do not let transport allowance determine your entire tax strategy. Compare the final tax liability under both regimes using your actual numbers.
Key Takeaways on Transport Allowance and the New Tax Regime
- Transport allowance for ordinary salaried employees is fully taxable under the new tax regime. The exemption of up to Rs. 1,600 per month for ordinary employees is not available under the new tax regime.
- Differently-abled employees can continue to claim the transport allowance exemption of up to Rs. 3,200 per month, subject to the applicable conditions.
- Actual reimbursements for expenses incurred while performing official duties can remain exempt, subject to the applicable rules and supporting documentation.
- The enhanced Rs. 75,000 standard deduction under the new regime provides a broader tax benefit and can offset the loss of certain salary allowance exemptions.
- Employees should inform their employer of their preferred tax regime for TDS calculation at the beginning of the financial year or when requested by the employer.
- The final choice should be based on your total tax liability under both regimes, rather than on any single allowance or deduction.
Final Words :
The rules around transport allowance under the new tax regime are clear but often misunderstood. For most salaried employees, the traditional Rs. 1,600 per month exemption is no longer available under the new regime, so the allowance becomes taxable. However, differently-abled employees may continue to receive the specific transport allowance exemption available to them, subject to the applicable conditions.
This does not automatically make the old regime better. The new regime offers lower slab rates and a higher standard deduction, which can make it attractive for employees who have limited deductions. On the other hand, employees with substantial eligible deductions and exemptions may find the old regime more beneficial.
The smartest approach is to treat your tax planning as a whole, rather than focusing on one salary component. Look at your salary structure, HRA, investments, home loan interest, insurance premiums, and other eligible deductions together. Then compare your actual tax liability under both regimes before making a decision.
Frequently Asked Questions
Is transport allowance taxable under the new tax regime in 2025?
Yes. For general salaried employees, the traditional transport allowance exemption of Rs. 1,600 per month is not available under the new tax regime. Therefore, a fixed transport allowance generally becomes taxable as part of salary.
However, a specific exemption of up to Rs. 3,200 per month may continue to apply to eligible differently-abled employees, subject to the applicable conditions.
Can I claim the transport allowance exemption if I switch back to the old regime?
Yes. Under the old tax regime, an eligible employee can claim the applicable transport allowance exemption. For general employees, the exemption is up to Rs. 1,600 per month, or Rs. 19,200 per year, subject to the relevant conditions.
If you want your employer to consider the old regime while calculating TDS, you should communicate your choice to your employer within the timeline specified by your organisation. However, the regime used for TDS does not necessarily determine your final tax position. An eligible salaried individual can make the final regime choice when filing the ITR.
What is the difference between transport allowance and conveyance allowance?
A fixed transport allowance generally refers to an amount paid as part of salary for commuting between home and the workplace.
Conveyance reimbursement for official duties is different. It relates to expenses incurred while performing employment duties, such as travelling to a client location or another office. Eligible reimbursements for official duties may receive tax-exempt treatment subject to the applicable rules and supporting documentation.
Therefore, you should not automatically assume that every payment labelled “conveyance” is tax-free.
Does the standard deduction replace the transport allowance exemption?
No. The standard deduction and transport allowance exemption are separate tax provisions.
Under the old regime, the standard deduction is available along with eligible exemptions and deductions. Under the new regime, salaried employees can claim the higher Rs. 75,000 standard deduction, but the general transport allowance exemption is not available.
Therefore, it is more accurate to say that the higher standard deduction provides a broader tax benefit to salaried employees, rather than saying that it directly replaces the transport allowance exemption.
How do I tell my employer which tax regime I want?
Most employers ask employees to declare their preferred tax regime at the beginning of the financial year so that TDS can be calculated accordingly.
If you do not provide the required declaration, your employer will generally calculate TDS under the default new tax regime. Check with your HR or payroll team for the specific process and deadline followed by your organisation.
Remember that the regime selected for TDS purposes is not always the final regime applicable when you file your ITR. Eligible taxpayers can make the appropriate final choice while filing their return, subject to the applicable rules.
Disclaimer
The information provided in this blog is for educational and informational purposes only and should not be construed as investment advice. Please consult a qualified financial advisor before making any investment decisions. Shashikant Chanderkumar Mudaliar (ARN: 319377), operating under the brand name VSJ FinMart, is an AMFI-registered Mutual Fund Distributor (MFD) and does not provide investment advisory services. Mutual fund investments are subject to market risks. Past performance is not indicative of future results. Please read all scheme-related documents carefully before investing. Registration details can be verified at www.amfiindia.com/locate-distributor.