Eligible disabled employees working in metro cities may soon claim transport allowance tax exemption of up to ₹15,000 per month plus dearness allowance under revised income tax provisions applicable from Assessment Year 2027-28.
The revised exemption framework significantly raises the earlier tax-free limit of ₹3,200 per month available under existing rules.
According to details reported by Mint, the revised exemption thresholds will apply to taxpayers filing income tax returns for Financial Year 2026-27.
The relief applies specifically to eligible specially abled employees and not to all salaried taxpayers.
Who qualifies for the revised exemption
Under income tax rules, transport or conveyance allowance remains taxable for most employees after amendments introduced in 2018 removed the broader exemption available earlier.
However, certain categories of disabled employees continue to qualify for tax exemption on transport allowance.
Eligible employees include individuals who are:
- Blind
- Deaf and mute
- Suffering from orthopaedic disability affecting upper or lower extremities
The revised exemption limits are divided between metro and non-metro locations.
The updated thresholds are:
- Metro cities: ₹15,000 per month plus dearness allowance
- Non-metro cities: ₹8,000 per month plus dearness allowance
The metro category includes cities such as:
- Mumbai
- Delhi
- Bengaluru
- Kolkata
- Chennai
- Hyderabad
Dearness Allowance, commonly known as DA, refers to the cost-of-living adjustment paid to employees and pensioners to offset inflation.
Current exemption remains unchanged for FY26 filings
For taxpayers filing returns for FY 2025-26, the older exemption limit of ₹3,200 per month will continue to apply.
The revised exemption structure becomes effective only for taxpayers filing returns during FY 2026-27 corresponding to AY 2027-28.
Tax experts said the move reflects rising commuting costs and growing attention towards workplace accessibility support.
Quoted by Mint, Gaurav Makhijani, Managing Partner at MGA, described the change as a significant tax reform for specially abled employees.
According to Makhijani, increasing the exemption limit from ₹3,200 to ₹15,000 per month in metro cities could provide an additional annual tax-exempt benefit of up to ₹1.42 lakh for eligible employees.
He also noted that the government had revised thresholds in certain other employee allowances, including meal cards and gift-related benefits.
How employees can claim the exemption
In most cases, employers account for eligible transport allowance exemptions while calculating tax deducted at source from employee salaries.
Employees are then required to report salary details mentioned in Form 16 Part B while filing income tax returns.
According to tax platform ClearTax, employees should:
- Check salary slips and CTC structures
- Verify whether transport allowance forms part of salary components
- Confirm whether exemption has already been considered by the employer
For FY 2025-26 filings under existing rules:
- If transport allowance is below ₹3,200 per month, the full amount may qualify for exemption
- If the allowance exceeds ₹3,200 monthly, only ₹3,200 qualifies as tax-exempt
The exemption remains available under both the old and new tax regimes for eligible employees.
Other transport-related tax benefits remain available
While the new tax regime removed several traditional exemptions and deductions, certain perquisite-related benefits linked to official vehicle use continue to remain available.
According to Makhijani, employees using personal vehicles partly for official purposes may still claim standard deductions subject to engine size and vehicle type.
The available deductions include:
- ₹5,000 per month for cars with engine capacity up to 1600cc
- ₹7,000 per month for cars above 1600cc
- Additional ₹3,000 per month for driver salary reimbursement
- ₹3,000 per month for non-car vehicles used for official purposes
The revised transport allowance thresholds come at a time when salaried taxpayers are increasingly evaluating available exemptions and allowances under the evolving income tax framework.
With commuting costs continuing to rise across urban India, the enhanced exemption is expected to provide targeted relief for eligible specially abled employees in both metro and non-metro locations.