New Income Tax Regime: Employees can Claim Exemption on Conveyance, Travel Allowance; More Details Here

The Central Board of Direct Taxes or CBDT has issued a notification amending rules for allowing taxpayers who want to opt for the new tax regime to claim exemption for allowance so as to meet cost of travel & daily expenses on transfer, conveyance allowance for meeting conveyance expenditure incurred in course to perform official duties and tour allowance for travel for official purposes to meet the travel and daily expenses. Apart from it, transport allowance for handicapped employee to commute to and from office is also a tax exempt, as per the new tax regime.

According to tax expert Shailesh Kumar, Partner, Nangia & Co LLP, "The notification has rightly exempted allowances in the nature of tour, transfer or conveyance for official purposes, as these are essentially incurred by employees not for their personal benefit, but for discharging their official duties. Thus, expecting employees to pay tax on such amount even under the new scheme would have been unreasonable."

Tax on food vouchers as per new scheme

Adding more to it, new tax rules also considers free meal or beverages given by an employer to employees during office hours through paid voucher to be a personal benefit to employees & not expenditure for official purposes. Thus, tax exemption of these free meals/beverages has been withdrawn in the new income tax regime.

Shailesh Kumar added, "This notification also apparently clarifies that except free meals or beverages or meal coupons, tax treatment of other perquisites specified under Rule 3, like rent free accommodation, motor cars, free or concessional education facility, concessional loan, telephone club membership, gifts etc. given by employer will be the same, i.e. as under old scheme & new scheme."

It is to be noted that the new rules will come into force from assessment year 2021-22.

The finance ministry has introduced two income tax slabs, offering an optional lower rate of income tax to individuals who are willing to forego certain specified deductions or exemptions while computing total income for tax purpose.

In the new income tax slab with lower tax rate, annual income up to Rs 2.5 lakh is exempt from tax. Those individuals earning between 2.5 lakh and 5 lakh rupees will pay 5 percent tax. Income between 5 and 7.5 lakh rupees will be taxed at 10 percent, & those between Rs 7.5 and 10 lakh will be taxed at 15 percent.

For those who are earning between Rs 10 – Rs 12.5 lakh will pay tax at the rate of 20 percent, whereas those between Rs 12.5 and Rs 15 lakh will have to pay at the rate of 25 percent. Income above Rs 15 lakh will be taxed at 30 percent.