Learn everything about Transport Allowance Exemption 2025 – rules, limits, and taxability. Get updated 7th CPC rates, old vs new regime comparison, and examples to help you claim exemptions correctly this year.
Introduction
Transport allowance is one of the most common components in a salary structure, provided to cover the cost of commuting between home and workplace. For many employees—especially government staff—the treatment of this allowance under income tax rules is crucial.
Over the years, rules around transport allowance exemption have changed significantly. Earlier, employees could claim fixed exemptions, but with the introduction of the standard deduction, most of these benefits were withdrawn. Even today, however, special provisions remain for certain categories such as differently-abled employees and transport workers.
This guide explains everything about transport allowance exemption in 2025—including current rules, how it works under old vs. new tax regimes, updated 7th Pay Commission rates, and practical examples. By the end, you’ll know exactly whether you can claim an exemption and how much relief you are entitled to.
What Is Transport Allowance?
Transport allowance is an amount paid by employers to meet expenses on commuting between an employee’s residence and office. It falls under Section 10(14) of the Income Tax Act, read with Rule 2BB of the Income Tax Rules.
It is important not to confuse transport allowance with conveyance allowance. While both help cover travel expenses, conveyance allowance is usually for official duty-related travel (e.g., going to client meetings), whereas transport allowance is purely for home-to-office commuting.
Almost all salaried employees may receive transport allowance as part of their pay, but whether it is tax-exempt or not depends on specific rules.
Transport Allowance Exemption Rules
The exemption framework for transport allowance has evolved over time. As of FY 2024–25 and FY 2025–26, the following rules apply:
General Employees
- Until FY 2017–18, employees could claim an exemption of ₹1,600 per month (₹19,200 annually).
- From FY 2018–19 onwards, this exemption was withdrawn and merged into the standard deduction.
- Currently, general employees do not get a separate transport allowance exemption. Instead, they benefit from the standard deduction:
- ₹50,000 under the old regime
- ₹75,000 under the new regime (effective April 1, 2025, as per the Finance Act 2024)
For official details, you can check the Income Tax Department’s guidance.
Specially-Abled Employees
For employees who are blind, deaf and dumb, or orthopedically handicapped with lower extremity disabilities:
- Exemption is ₹3,200 per month (₹38,400 annually).
- This exemption is available in both old and new regimes, in addition to the standard deduction.
- Employees must provide valid medical certification to claim this exemption in payroll and during filing of income tax returns.
This relief ensures equitable support for employees who face higher commuting challenges.
Employees in Transport Business
For employees engaged in transport businesses (such as drivers, conductors, or staff directly involved in running transport vehicles):
- The exemption is the lower of:
- ₹10,000 per month, or
- 70% of the transport allowance actually received.
- This category is unique because the nature of work involves constant commuting and movement.
The detailed rules are available in Rule 2BB of the Income Tax Rules and the relevant sections of the Income Tax Act, available on the Ministry of Finance portal.
Quick Reference Table – Transport Allowance Exemption Rules (2025)
| Category of Employee | Exemption Rule (2025) | Notes |
|---|---|---|
| General employees | No separate exemption (covered under standard deduction) | Standard deduction: ₹50,000 (old), ₹75,000 (new regime) |
| Specially-abled employees | ₹3,200/month (₹38,400 annually) | Available under both regimes |
| Employees in transport business | Lower of ₹10,000/month or 70% of allowance received | Not applicable if daily allowance is paid separately |
This covers the basics of what transport allowance is and the current exemption rules. Next, we’ll move into how these exemptions differ under the old vs. new tax regimes, and what that means for your take-home salary in 2025.
Old Regime vs New Tax Regime: Treatment of Transport Allowance
When the new tax regime was introduced under Section 115BAC of the Income Tax Act, it changed how exemptions and deductions were handled. Employees now face a choice: continue under the old regime with multiple deductions, or move to the new regime with lower tax rates but fewer exemptions.
Transport allowance, like many other salary components, is treated differently depending on the regime.
Standard Deduction vs Transport Allowance
In 2018, the government replaced the fixed transport and medical allowance exemptions with a standard deduction. This ensured uniform tax relief for all salaried employees.
- Under the old regime, the standard deduction is ₹50,000 per year.
- Under the new regime, the standard deduction is ₹75,000 per year, effective April 1, 2025, as announced in the Union Budget 2024.
For the majority of employees, transport allowance no longer gives a separate tax exemption. Instead, the benefit is absorbed into the broader standard deduction.
Transport Allowance in the Old Regime
- General employees cannot claim a separate transport allowance exemption.
- The only category eligible is specially-abled employees, who can claim ₹3,200 per month in addition to the standard deduction.
- Transport business employees (drivers, conductors, etc.) can still claim the lower of ₹10,000 per month or 70% of allowance received.
Thus, in the old regime, transport allowance is relevant only for specific employee categories.
Transport Allowance in the New Regime
The new tax regime disallows most exemptions, but transport allowance for certain employees is an exception:
- Specially-abled employees continue to get the ₹3,200 per month exemption.
- Transport workers retain the exemption of up to ₹10,000 per month or 70% of allowance.
- For all others, the only relief is the ₹75,000 standard deduction from FY 2025–26 onwards.
The Central Board of Direct Taxes (CBDT) clarified that these exemptions remain even under the new system, ensuring parity for those who face higher commuting costs.
Comparison Table: Old vs New Tax Regime (2025)
| Employee Category | Old Regime (FY 2025–26) | New Regime (FY 2025–26) |
|---|---|---|
| General employees | Standard deduction ₹50,000; no TA exemption | Standard deduction ₹75,000; no TA exemption |
| Specially-abled employees | Standard deduction ₹50,000 + TA ₹3,200/month | Standard deduction ₹75,000 + TA ₹3,200/month |
| Transport business employees | Lower of ₹10,000/month or 70% allowance | Lower of ₹10,000/month or 70% allowance |
Practical Impact
For most salaried individuals, the new regime is more beneficial if they do not have large deductions to claim, because the standard deduction itself is higher. However, those with additional deductions like HRA, LTA, or Section 80C investments may still prefer the old regime.
Transport allowance exemption plays a role only for two categories—specially-abled employees and transport sector workers—and the benefit is the same in both regimes.
Example: General Employee
Suppose an employee earns a salary of ₹8,00,000 annually and receives a transport allowance of ₹1,600/month:
- Under the old regime, the transport allowance is fully taxable. The only relief is the standard deduction of ₹50,000.
- Under the new regime, the allowance is also taxable, but the employee gets a higher standard deduction of ₹75,000.
This means the transport allowance itself provides no tax relief. The difference lies in the deduction amount.
Example: Differently-Abled Employee
Now consider an employee earning the same ₹8,00,000 annually but eligible for the disability exemption:
- Under the old regime, taxable salary reduces by ₹50,000 (standard deduction) + ₹38,400 (TA exemption).
- Under the new regime, taxable salary reduces by ₹75,000 (standard deduction) + ₹38,400 (TA exemption).
In this case, the new regime provides a larger overall deduction while still retaining the special TA exemption.
This comparison highlights that while transport allowance exemption is no longer relevant for general employees, it continues to be meaningful for certain groups.
7th CPC: Transport Allowance Rates for Central Government Employees
Transport allowance is especially significant for central government employees because it is governed by recommendations of the 7th Central Pay Commission (7th CPC). Unlike private-sector employees, government staff receive fixed rates of allowance, which vary depending on pay level and city category.
The Department of Expenditure (DoE) regularly issues updates to these rates, especially when the Dearness Allowance (DA) percentage changes. As of January 1, 2025, DA has been revised to 55%, which directly increases the effective transport allowance.
Categories of Cities
Transport allowance under the 7th CPC is divided based on where the employee is posted:
- TPTA (Transport Allowance at Higher Rates of Transport Allowance) Cities
- These are major metros and state capitals with higher commuting costs. Examples: Delhi, Mumbai, Bengaluru, Hyderabad, Chennai, and Kolkata.
- Other Cities
- Smaller towns and rural postings where transport costs are comparatively lower.
The rates differ significantly between these two categories.
7th CPC Transport Allowance Rates (2025 with 55% DA)
Below is the latest structure of transport allowance for central government employees, including the Dearness Allowance at 55%.
| Pay Level in Pay Matrix | TPTA Cities (₹ per month) | Other Cities (₹ per month) |
|---|---|---|
| Level 1 & 2 | ₹1,350 + DA (55%) = ₹2,093 | ₹900 + DA (55%) = ₹1,395 |
| Level 3 to 8 | ₹3,600 + DA (55%) = ₹5,580 | ₹1,800 + DA (55%) = ₹2,790 |
| Level 9 & above | ₹7,200 + DA (55%) = ₹11,160 | ₹3,600 + DA (55%) = ₹5,580 |
The DA component makes a significant difference. For example, a Level 9 officer in Delhi now gets ₹11,160 per month, almost double compared to smaller city postings.
The updated figures can also be checked on the 7th CPC Transport Allowance notifications published for government employees.
Special Provisions for Differently-Abled Employees
Central government employees with physical disabilities receive double the normal transport allowance. However, the minimum benefit cannot be less than ₹2,250 per month (exclusive of DA).
For example, a differently-abled Level 2 employee in a non-TPTA city would normally receive ₹1,395 per month (including DA). But due to the double benefit rule, they are entitled to ₹2,250 minimum, plus DA wherever applicable.
This ensures that employees with mobility challenges are fairly compensated for higher commuting needs.
Why 7th CPC TA Matters
Unlike the standard exemption rules under the Income Tax Act, 7th CPC allowances are direct additions to take-home pay for government staff. The TA is taxable for most employees unless they fall under the categories eligible for exemption (such as differently-abled).
Therefore:
- TA boosts monthly income for central government employees.
- For tax purposes, the exemption portion still follows the ₹3,200/month or transport staff rules, while the remaining allowance is taxable.
- With DA hikes twice a year, employees can expect regular increases in their TA.
Example: Central Government Officer in TPTA City
Suppose a Level 9 officer posted in Mumbai:
- Base TA = ₹7,200
- DA @ 55% = ₹3,960
- Total TA received = ₹11,160 per month (₹1,33,920 annually)
For tax:
- If not differently-abled, the entire ₹1,33,920 is taxable (no separate exemption).
- If differently-abled, they can claim exemption up to ₹38,400 annually, reducing taxable income.
Example: Driver in Transport Business (Central Govt Undertaking)
Consider a driver receiving ₹14,000/month as transport allowance:
- 70% of allowance = ₹9,800
- Rule limit = ₹10,000/month
- Exemption = Lower of the two = ₹9,800 per month (₹1,17,600 annually)
Thus, while the driver receives the entire ₹14,000 allowance, only ₹9,800/month is exempt. The balance ₹4,200/month is taxable.
The 7th CPC makes transport allowance a substantial salary component for central government staff. However, when it comes to income tax, exemptions are tightly defined and apply to limited cases.
Income Tax Implications and Examples
Understanding the taxation of transport allowance is crucial for employees preparing their income tax returns. Although the rules appear straightforward, the treatment varies depending on employee category, tax regime, and whether any exemptions apply.
General Principles of Taxability
- Fully taxable for most salaried employees (except the specified categories).
- Exemption applies only to:
- Differently-abled employees (₹3,200/month).
- Transport sector employees (up to ₹10,000/month or 70% of allowance).
- For central government staff, entire TA received is taxable, except where disability or transport-sector rules apply.
Employers usually show transport allowance separately in Form 16. At the time of filing, employees must ensure they claim any eligible exemption under Section 10(14).
For clarity, the Income Tax Return (ITR) filing guide explains how allowances are to be reported.
Example 1: Regular Employee (Non-Special Category)
Salary Structure
- Basic Salary: ₹7,20,000 annually
- Transport Allowance: ₹19,200 annually (₹1,600/month)
- Other allowances: ₹60,000
Tax Treatment – Old Regime (FY 2025–26)
- Standard Deduction: ₹50,000
- Transport allowance: Fully taxable
- Net taxable salary = ₹7,80,000 − ₹50,000 = ₹7,30,000
Tax Treatment – New Regime (FY 2025–26)
- Standard Deduction: ₹75,000
- Transport allowance: Fully taxable
- Net taxable salary = ₹7,99,200 − ₹75,000 = ₹7,24,200
Result: The new regime offers lower taxable income in this case, even though the transport allowance itself is not exempt.
Example 2: Differently-Abled Employee
Salary Structure
- Basic Salary: ₹8,00,000 annually
- Transport Allowance: ₹38,400 annually (₹3,200/month)
- Other allowances: ₹72,000
Tax Treatment – Old Regime
- Standard Deduction: ₹50,000
- Transport allowance exemption: ₹38,400
- Net taxable salary = ₹9,10,400 − (₹50,000 + ₹38,400) = ₹8,22,000
Tax Treatment – New Regime
- Standard Deduction: ₹75,000
- Transport allowance exemption: ₹38,400
- Net taxable salary = ₹9,10,400 − (₹75,000 + ₹38,400) = ₹7,97,000
Result: The exemption for differently-abled employees applies in both regimes, but the higher standard deduction under the new regime makes it more beneficial.
Example 3: Central Government Officer (7th CPC, Level 9, TPTA City)
Salary Structure
- Basic Salary: ₹12,00,000 annually
- TA: ₹11,160/month = ₹1,33,920 annually
- DA, HRA, and others not considered here for simplicity
Tax Treatment (if not differently-abled)
- Old regime: Standard Deduction ₹50,000
- TA: Fully taxable
- Net taxable = ₹13,33,920 − ₹50,000 = ₹12,83,920
- New regime: Standard Deduction ₹75,000
- TA: Fully taxable
- Net taxable = ₹13,33,920 − ₹75,000 = ₹12,58,920
Tax Treatment (if differently-abled)
- Exemption available = ₹38,400 annually
- Old regime: Net taxable = ₹13,33,920 − (₹50,000 + ₹38,400) = ₹12,45,520
- New regime: Net taxable = ₹13,33,920 − (₹75,000 + ₹38,400) = ₹12,20,520
Result: The exemption significantly reduces taxable income for differently-abled officers.
Example 4: Transport Business Employee (Driver)
Salary Structure
- Basic Salary: ₹4,80,000 annually
- Transport Allowance: ₹1,68,000 annually (₹14,000/month)
Exemption Calculation
- 70% of allowance = ₹9,800/month (₹1,17,600 annually)
- Rule limit = ₹10,000/month (₹1,20,000 annually)
- Exemption allowed = ₹1,17,600
Tax Treatment (both regimes)
- Exempt = ₹1,17,600
- Taxable = ₹50,400
- Plus, apply standard deduction of ₹50,000 (old) or ₹75,000 (new).
Result: The majority of allowance is exempt, which makes a huge difference for transport sector employees.
Key Takeaways from the Examples
- General employees: No transport allowance exemption; rely on standard deduction.
- Differently-abled employees: Always eligible for ₹3,200/month exemption in both regimes.
- Central government staff: TA adds significantly to income, but exemptions are limited.
- Transport business employees: Benefit most, since up to ₹10,000/month can be exempt.
For authentic updates, employees can also track notifications on the Department of Expenditure website.
How to Claim Transport Allowance Exemption
While transport allowance is often auto-processed by employers in payroll, employees must still ensure exemptions are correctly reflected in their salary slips, Form 16, and income tax return (ITR).
Step 1: Check Your Salary Structure
Review your payslip to confirm whether a transport allowance component exists. Many organizations have merged it into consolidated salary heads after the introduction of standard deduction.
- If you are a general employee: The allowance will be fully taxable unless you fall under an eligible category.
- If you are differently-abled: Ensure that your employer has applied the ₹3,200/month exemption.
- If you are a transport worker: Verify whether the 70% or ₹10,000/month limit is being applied in payroll calculations.
Step 2: Verify in Form 16
Employers typically reflect transport allowance in Part B of Form 16.
- The exempt portion should be shown under Section 10(14).
- If it is missing, employees can still claim the exemption while filing returns, provided they hold valid proof.
The TRACES portal allows employees to download Form 16 and cross-check details.
Step 3: Claim in Income Tax Return (ITR)
When filing your ITR:
- Select the correct form (ITR-1 or ITR-2 depending on your income).
- Enter the gross transport allowance received in the salary section.
- Deduct the exempt portion (₹3,200/month or transport worker exemption) in the allowance column.
- Retain supporting proof in case of scrutiny (medical certificate for disability, appointment letters for transport workers, etc.).
The Income Tax e-filing portal provides step-by-step guidance on reporting exemptions.
Step 4: Documentation to Keep
- Medical Certificate: For differently-abled employees, issued by a government-approved medical authority.
- Employment Proof: For transport sector staff (appointment letter, job role description).
- Payslips and Form 16: To validate actual allowance received.
Employers may ask for these during payroll processing, and tax authorities may request them during scrutiny.
Conclusion
Transport allowance has long been a key part of salary structures in India, but its tax treatment has evolved significantly. Since FY 2018–19, general employees no longer enjoy a separate exemption, as the government merged it into the standard deduction. Today, only differently-abled employees and transport sector workers remain eligible for exemptions under Section 10(14).
For central government staff, transport allowance under the 7th Pay Commission continues to be a major salary component. With DA hikes factored in, the allowance provides a substantial monthly benefit, though most of it is taxable unless the employee falls under special categories.
Key Points to Remember
- General employees: Transport allowance is fully taxable. Relief comes only through the standard deduction (₹50,000 in old regime, ₹75,000 in new regime from FY 2025–26).
- Differently-abled employees: Eligible for exemption of ₹3,200 per month, regardless of tax regime.
- Transport workers: Can claim the lower of ₹10,000/month or 70% of actual allowance received as exemption.
- 7th CPC employees: TA varies by pay level and city category, with DA significantly enhancing the payout.
- Claiming exemption: Ensure proper reflection in salary slips, Form 16, and ITR. Keep medical certificates and job documents for proof.
Why It Matters
Transport allowance exemption may seem like a minor part of taxation, but it directly impacts take-home salary for thousands of employees across India. For those in the differently-abled and transport business categories, it provides meaningful financial relief. For central government employees, the allowance is a substantial recurring benefit tied to DA revisions.
Given the frequent changes in tax laws and DA rates, staying updated is crucial. The Income Tax Department portal and Department of Expenditure regularly publish circulars and updates that employees should monitor.
Final Thoughts
When planning taxes for FY 2025–26, employees should carefully evaluate whether the old or new regime offers better benefits. For many, the higher standard deduction in the new regime makes it more attractive. However, those with multiple deductions (HRA, Section 80C, home loan interest) may still find the old regime beneficial.
Transport allowance exemption plays a limited but important role in this choice. Employees should review their payslips, claim eligible exemptions, and use official resources to avoid mistakes.
Call to Action
If you’re a salaried employee, don’t leave money on the table. Check whether you qualify for transport allowance exemption, and ensure your employer or payroll system is applying it correctly.
For regular updates on salary-related exemptions, 7th CPC changes, and tax filing guidance, consider subscribing to trusted newsletters or downloading government notifications directly from official portals. Staying informed will help you maximize benefits while staying compliant with tax laws.
FAQ
Is transport allowance exempt for all employees in 2025?
No. General employees do not get a separate exemption. Only differently-abled employees and transport sector workers can claim exemptions under Section 10(14).
What is the exemption limit for differently-abled employees?
They can claim ₹3,200 per month (₹38,400 annually) as transport allowance exemption. This applies in both old and new tax regimes.
Can private sector employees claim transport allowance exemption?
Yes. The exemption rules apply to all salaried employees, whether in the private or government sector, provided they meet the eligibility conditions.
What is the exemption limit for employees in the transport business?
Employees in the transport sector can claim the lower of ₹10,000 per month or 70% of the transport allowance received as exemption.
Do central government employees get transport allowance exemption?
Yes, but only differently-abled staff and transport sector employees qualify. For others, the allowance is taxable as per Section 10(14).
Can I claim both standard deduction and transport allowance exemption?
Yes. The standard deduction is separate. Differently-abled employees and transport workers can claim both benefits at the same time.
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