Need for exempting Transport Allowance from Income Tax

The need for exempting Transport Allowance from Income Tax – Railway Board writes to Finance Ministry

As such the present Income tax provisions stipulate that Transport Allowance received in excess of Rs.800 is taxable. Railway Board has taken up this issue with Ministry of Finance for amending the Income Tax Provisions to the effect that Transport Allowance up Rs.3200 is exempted.

The Railway Board has cited the very reason that prior to implementation of sixth pay commission report, entire transport allowance paid to government employees was exempted under Income tax provisions.

The VI CPC, while reviewing the system of grant of Transport Allowance has recommended to enhance the same from Rs.100 to Rs.800,  Rs.400 to Rs.1600 and Rs.800 to Rs.3200, for Pay Bands 1 to 4 respectively. The City Compensatory Allowance was Withdrawn. It was also recommended to provide the coverage of DA. to Transport Allowance as per increase in the Consumer Price Index. However, the amendment which is needed to exempt the enhanced Transport Allowance is yet to be made by Income Tax Department / Finance Ministry.

The full text of this Office Memorandum dated 10.10.2012 is given as follows

GOVERNMENT OF INDIA

MINISTRY OF RAILWAYS

(RAILWAY BOARD)

No. F(X) I-2012/23/4

New Delhi, dated 10.10.2012

OFFICE MEMORANDUM

Sub: Exemption of Transport Allowance from the purview of Income Tax- Enhancement of exemption limit from Rs. 800/- to Rs. 3200/- plus D.A. thereon.

The undersigned is directed to draw the attention of the Ministry of Finance (Department of Revenue) Central Board of Direct Taxes towards para 5.2(10) (i) at page 14 of their circular No. 05/2011 dated 16.08.2011 wherein it has been specified that the transport allowance granted to an employee to meet his expenditure for the purpose of commuting between the place of his residence and the place of duty is exempt to the extent of Rs. 800/- per month.

Representations are being received in the Ministry of Railways from various federations of Railways. The Federations have represented that Transport Allowance was introduced with the concept of providing financial support to the Central Government Employees who incur considerable amounts for their day-to-day travel from their residence to the work place. This had materialized based on the recommendations of the V CPC which introduced Transport Allowance in 3 slabs at the rate of Rs.100. Rs.400 and Rs.800, based on the classification of the cities/towns under Urban Agglomeration Act. Further, a prerequisite was introduced to allow this facility for those who stay beyond 1 km radius from the place of work.

A decision was taken to equate such allowance on par with normal Travelling/Daily Allowance and these amounts have also been exempted from computation of annual income and exempted from the purview of Income Tax vide Income Tax (Eighth Amendment) Rules, 1995 notified vide F.No.142/9/95-TPL dt. 7-7-1995.

The VI CPC, while reviewing the system of grant of Transport Allowance has recommended to enhance the same from Rs.100 to Rs.800,  Rs.400 to Rs.1600 and Rs.800 to Rs.3200, for Pay Bands 1 to 4 respectively. The City Compensatory Allowance was Withdrawn. It was also recommended to provide the coverage of DA. to Transport Allowance as per increase in the Consumer Price Index.

Ministry of Finance are therefore requested to include the request of the Railways for taking due action for enhancing exemption of Transport Allowance from the purview of Income Tax from Rs. 800/- to Rs. 3200/- plus DA Thereon.

sd/-

(M.Anand Krishna)

Deputy Director, Finance (Exp.)