Exemption on certain allowances to be continued to salaried employees under the new tax regime

  • With an aim to make taxation simpler for individual tax payer, the Budget 2020 had introduced a new Concessional Tax Rate (CTR) regime (under section 115BAC) for individuals, wherein they were allowed to offer their total income at a concessional rate provided they forgo prescribed tax exemptions and deductions.
  • Now, the Central Board of Direct Taxes (‘CBDT’) vide Notification No. 38/2020/F. No.370142/15/2020-TPL clarified that, following allowances shall continue to be exempt in the hands of salaried taxpayers opting for CTR regime:
Particulars Description under the tax rules
Travel Allowances on Tour / Transfer ­- Any allowance granted to meet the cost of travel on tour or on transfer
Daily allowances on Tour / Transfer – Any allowance, whether, granted on tour or for the period of journey in connection with transfer, to meet the ordinary daily charges incurred by an employee on account of absence from his normal place of duty
Conveyance Allowance – Any allowance granted to meet the expenditure incurred on conveyance in performance of duties of an office or employment of profit
Ad-hoc exemption for specially-abled people – Ad-hoc Transport allowance of INR 3,200 per month to blind or deaf and dumb or orthopedically handicapped with disability of lower extremities, for commuting between the place of his residence and the place of his duty
  • Further, it has been clarified that the exemption will not be applicable to free food and nonalcoholic beverage provided by employer through paid voucher to employee opted for CTR regime.
  • It may be noted that the New CTR is optional for taxpayers. This option can be exercised while filing the tax return of income in every tax year where the taxpayer does not have business or professional income.

Our Comments:

  • This is a welcome move by CBDT as the said notifications grants exemption to the allowances which are in the nature of tour, transfer or conveyance incurred for official purposes.
  • However, it is pertinent to note that, the employer entity paying such allowances shall take into the consideration for deducting the TDS on the salary. Thus, all the employer entity should now be required to revise the TDS calculations by incorporating the above exemption notified by the CBDT.