CBDT Allowed Employees to Claim IT Exemption on Conveyance Allowance Under New Tax Regime

The Central Board of Direct Taxes (CBDT) released a notification recently and made some changes in Income Tax rules to provide some exemptions that can be availed by the employees.

The new rules due the amendments permitted individuals to claim exemptions for allowance to manage the cost of travel, daily expenses on transfer, and tour or travel allowances for official purposes and allowance for meeting daily expenses, and even for allowance for meeting transportation expenses incurred in performing official duties.

The notification also has something for differently-abled persons ( blind, deaf, and dumb or orthographically handicapped employees), now they can also claim ad hoc exclusion of allowance on the transport of Rs 3,200 per month while computing income from salary. The newly released rule also mentions that providing transportation in such cases is a responsibility of the employer, and so the tax exclusion.

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

Shailesh Kumar, partner, Nangia & Co LLP said that “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,”.

The Central Board of Direct Taxes stated that “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”.

Amit Maheshwari, tax partner at AKM Global responded that “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”.

We would like to mention here that the finance minister Nirmala Sitharaman introduced a new income tax regime This year Budget has provided an option for taxpayers to opt-in for a new tax regime with lower tax rates, but it will be without the tax exemptions as well during this year’s annual budget. The new tax regime was made available to all the taxpayers with lower income tax rates but it also has one condition involved that “No deduction or exemption can be availed, except in cases where the government clearly prescribes them”.