Transport Allowance: Tax Exemption, Limits for Tax Year 2026-27 and Rules
CA Meet Dhrangadhariya 
April 24, 2026
CA Meet Dhrangadhariya April 24, 2026
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Last updated: 29 July 2026 · Written and reviewed by CA Meet Dhrangadhariya, CSM & Co LLP
Quick summary
A transport allowance is an amount an employer pays so an employee can travel between home and the place of work. For most employees it is fully taxable. A special exemption applies to employees with certain disabilities, and a separate one to employees of a transport business.
Up to FY 2025-26 the exemption was under section 10(14) of the Income-tax Act, 1961 and Rule 2BB. From Tax Year 2026-27 it is in Schedule III of the Income-tax Act, 2025, with the amounts in Rule 280 of the Income-tax Rules, 2026.
Until FY 2017-18 every employee could exempt ₹1,600 a month of transport allowance. From FY 2018-19 that exemption was withdrawn and replaced by the standard deduction on salary, which now stands at ₹50,000 in the old regime and ₹75,000 in the new regime. So an ordinary employee pays tax on the whole allowance and gets the standard deduction instead.
The exemption is for an employee who is blind, or deaf and dumb, or orthopaedically handicapped with disability of the lower extremities (from 01/04/2026, the lower or upper extremities), for travel between home and the place of duty.
| Period | Exempt amount per month |
|---|---|
| Up to FY 2025-26 | ₹3,200 |
| From 01/04/2026, metro cities | ₹15,000 plus dearness allowance on it |
| From 01/04/2026, other cities | ₹8,000 plus dearness allowance on it |
This is available in both the old regime and the new regime. The part above the limit is taxable.
An employee of a transport system who gets an allowance to meet personal expenses while on duty during the journey, and who does not get a daily allowance, can exempt 70% of the allowance, up to ₹10,000 a month until FY 2025-26 and up to ₹25,000 a month from 01/04/2026. This is allowed in the old regime only.
| Basis | Transport allowance | Conveyance allowance |
|---|---|---|
| For | Travel between home and office | Travel in the performance of duties, with no free conveyance from the employer |
| Exemption | Only for disability or transport business, as above | Actual expense incurred |
| Regimes | Disability: both. Transport business: old only | Both |
Mr D is an orthopaedically handicapped employee in Mumbai and gets ₹20,000 a month as transport allowance in FY 2026-27, with no dearness allowance on it. The exemption is the lower of ₹20,000 and ₹15,000 (plus DA on it, nil here), so ₹15,000 a month, ₹1,80,000 a year, is exempt. The balance of ₹5,000 a month is taxable.
Another employee with no disability and the same allowance pays tax on the whole ₹2,40,000 a year.
Your employer applies the exemption when calculating TDS and shows it in Form 16. Give the employer a disability certificate. If it was missed, you can still claim the exemption when you file your return, in the exempt allowances part of the salary schedule.
Transport allowance for Central Government employees under the 7th Pay Commission depends on pay level and city class (for example ₹7,200 plus dearness allowance for pay level 9 and above in the highest cities). It is taxable unless the employee has a disability and qualifies for the exemption above.
Yes, for most employees it is fully taxable. The exemption for commuting allowance was withdrawn from FY 2018-19 when the standard deduction was introduced.
An employee who is blind, deaf and dumb, or orthopaedically handicapped with disability of the lower or upper extremities, for travel between home and work.
₹15,000 a month plus dearness allowance in metro cities, and ₹8,000 a month plus dearness allowance in other cities (up to FY 2025-26 the limit was ₹3,200 a month).
Yes, the transport allowance for disabled employees is allowed in both regimes. The transport business exemption is old regime only.
No. Transport allowance is for travel from home to office. Conveyance allowance is for travel in the performance of duties and is exempt to the extent of the actual expense.
This article is for general informational purposes only and should not be considered professional advice. Please consult a qualified expert for advice tailored to your specific situation. The author and website owner are not liable for any errors or actions based on this content.
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