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The government is considering a proposal to raise the tax exemption limit on monthly transport allowance, a move that could enrich taxpayers by as much as Rs 9,000 a year, but at the same time put further pressure on its already-strained finances.

The proposal to increase the tax exemption limit for transport allowance to Rs 3,200 a month from Rs 800 follows a similar hike for government servants under the Sixth Pay Commission award. It is likely to find adoption in the private sector too, triggering greater spending across the economy and boosting the bottom lines of companies in a wide swath of sectors.

A decision on the proposal, following representations from some quarters in the government, is expected soon, a finance ministry official told ET, on condition of anonymity. The government, which is facing the worst economic growth prospects since 2003 due to credit crisis and drought, is leaving no stone unturned to boost consumer demand and revive economic growth to the record 9% seen before the 2008 crisis. It has cut taxes, raised spending on social and infrastructure projects and enabled lower interest rates for companies and individuals.

Private final consumption expenditure nearly halved to 27% of gross domestic product (GDP) in the last fiscal year from 53.8% a year earlier as consumers restricted spending fearing job losses amid slowing sales growth and reduced profits. The consumption fall was partly offset as government final consumption to GDP rose four-fold to 32.5% from 8%, according to Reserve Bank of India data.

The move is expected to lead to an yearly additional exemption of Rs 28,800, which would yield a tax saving of Rs 8,899 a year, including the cess, to those in the highest tax bracket. While this may boost demand, the government, which is already running a record deficit of 6.8% of GDP, could lose significant tax revenues and many assesses would also fall out of the tax net.

Collections of both direct and indirect taxes are under pressure following tax rate cuts and economic slowdown. Direct tax collections grew by a modest 4% in April-August period to Rs 87,888 crore. The Central Board of Direct Taxes, which has the power to formulate and change rules, is exploring the possibility of hiking the exemption through a notification.

Allowances such as transport are governed by the rule 2BB of the Section 10(14) of the Income Tax Act. The board is only required to place the new rule before Parliament whenever it has its next session.


M.K.KUMR said…
Every year by Increments Govt.servants leaving in Govt.quarters are loosing 30%in salary (H.R.A)plus Daily allowance. Hence the licence fee should also be exempted from Income-tax.They are paying in addition to the professional tax
Unknown said…
to my best of knowledge and belief the licence fee is not taxable. even some years back there was some taxing money on the licence fee but according to clarification given by Swamy News the licence fee should be taxed. V.Padmanabhan (VCRC)Pondicherry
Unknown said…
sir there is mistake in my earlier comments wamy News the licence fee should not be taxed.sorry for error V.Padmanabhan (VCRC)Pondicherry
Unknown said…
While calculating DA twice in the year, whether Income Tax liability is considered? If not same must be considered as DA component is also taxable!
Anonymous said…
I think it is exemption of I T on Transport Allowance up to Rs.3200/- and not Travelling Allowance as written by U in the Blog.Isn't it?

Rama Chandra Das,Berhampur(Orissa)
Anonymous said…
Those retiring on June 30th on super annuation with date of birth as 1st July are not really losing an increment after working for complete one yer. Is there any provision to get pension fixation with increment. Pl comment.
aoldeva said…
Has Income Tax Department issued any order on raising the transport allowance exemption to Rs.3,200/- per month? If so, will it be available in the blogspot?
Anonymous said…
Sir, Is it not injustice in applying commutation factor same for those who borns on 1st of the month and born from 2nd of the month, as the former is retired on the last day of the previous month and the later at the end of the current month.I feel that the former's commutation factor should be equal to those born in the previous month. Pl commentany solution?
Unknown said…
pl. confirm the exemtion limit of Transport allowance for the year 2009-2010. Is it @rs.800/- or @ Rs. 1600. pl. confim. Whether any order has been issued?
jasmine said…
Transfer Travelling Allowance paid to Central Govt. Employees is taxable or not please tell
Anonymous said…
The b Goverment quarter ent should be exempeted from Tax, Because those who are staying in renmeted house are getting HRa and tax exemption on it. where as those who are staying in govt accomodation are not getting HRA as well as they have to pay Licence Fee and Income tax also on it. It is not logically correct.
Anonymous said…
Will transport allowance be admissible in the following situation:

Availed Leave from 1st to 29th of the month. Attended duty in the afternoon of the last working day of the month, i.e., afternoon of 30th. So, under leave rules 30th was also counted as leave. Commuting was made from residence to place of duty on 30th for performing duty. Remained in the HQrs on 30th and 31 st of the month.

It is to be kept in mind that transport allowance is not linked to leave but linked to presence in HQrs.
faransqi said…
Dear,Padmnabhan55 sir
Could you please elaborate under what clause of IT licence fee is exempted from IT.

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