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Transport or Conveyance Allowance

Allowance is fixed amount of money given to an employee regularly in addition to salary, for the purpose of meeting specific requirements. As a general rule, all allowances by whatever name called are taxable unless specifically exempted.



What is Transport or Conveyance Allowance?

Transport allowance or Conveyance allowance is an allowance granted to an employee to meet his/her expenditure for the purpose of commuting between the place of residence & duty.

Exemption Limit

Transport allowance exemption is provided in Section 10(14)(ii) of the Income Tax Act and Rule 2BB of Income-tax Rules. Transport allowance is exempt to the extent to Rs 1,600 per month, i.e. upto Rs 19,200 is exempt for a year. Any amount paid over this limit is taxable. For example if an employee is getting Rs 3,000 as Transport or Conveyance allowance every month, Rs 1,600 is exempt and Rs 1,400 is taxable per month. Thus out of Rs 36,000 transport allowance received for the year, Rs 19,200 would be exempt and Rs 16,800 would be taxable.

It is to be noted that the exemption limit for transport allowance was Rs 800 per month till March 2015 (i.e. FY 2014-15 corresponding to AY 2015-16). Increase in the limit from Rs 800 per month to Rs 1,600 per month was announced in Union Budget 2015 and the same is effective April 2015 (i.e. FY 2015-16 corresponding to AY 2016-17).

Also note that previously transport allowance granted to physically disabled employee had higher exemption limit of Rs 1,600 per month compared to Rs 800 per month for others. With this amendment, transport allowance exemption is now uniform at Rs 1,600 per month for all employees.

Proof of Utilisation

Proof of utilisation of the transport allowance is not required to avail the exemption. Entire amount paid as transport allowance upto maximum of Rs 1,600 per month is exempt from tax.

Name is important

Name matters. While cost for the employer remains same, what it calls the allowance paid to the employee can have potential tax implications for the employee. Let’s understand this point through an example. Suppose apart from Basic salary and HRA, a company is paying Rs 10,000 per month to an employee as Special Allowance and is not paying any Transport Allowance. Just by carving out transport allowance of Rs 1,600 per month and reducing the Special Allowance to Rs 8,400 per month, such that total cost for the company remains same at Rs 10,000 per month, employee is able to save Rs 5,933 every year in tax liability. 

PPF Calculator with Yearly Chart & Graph

Public Provident Fund (PPF) is a savings accumulation cum tax saving scheme available for individuals. Regular deposits in PPF can be used to build sizeable savings. For example monthly deposit of Rs 10,000 in PPF account for a period of 15 years will build a corpus of approximately Rs 36 lakhs.

Use the excel based PPF Calculator to calculate maturity value of yearly or monthly investment in PPF. Also see the chart and graph of yearly accumulation of PPF balance.

Click here to download: PPF MATURITY VALUE CALCULATOR

Income Tax Rates for AY 2016-17 (FY 2015-16)

Income Tax Rates applicable for Individuals, Hindu Undivided Family (HUF), Association of Persons (AOP) and Body of Individuals (BOI) in India is as under:






Assessment Year 2016-17, Relevant to Financial Year 2015-16 

For Individuals below 60 years age (including Woman Assessees):
Income
Tax Rate
Upto 250,000
Nil
250,000 to 500,000
10% of the amount exceeding 250,000
500,000 to 1,000,000
Rs.25,000 + 20% of the amount exceeding 500,000
1,000,000 & above
Rs.125,000 + 30% of the amount exceeding 1,000,000

For Individuals aged 60 years and above but below 80 years (Senior Citizen):
Income
Tax Rate
Upto 300,000
Nil
300,000 to 500,000
10% of the amount exceeding 300,000
500,000 to 1,000,000
Rs.20,000 + 20% of the amount exceeding 500,000
1,000,000 & above
Rs.120,000 + 30% of the amount exceeding 1,000,000

For Individuals aged 80 years and above (Very Senior Citizen):
Income
Tax Rate
Upto 500,000
Nil
500,000 to 1,000,000
20% of the amount exceeding 500,000
1,000,000 & above
Rs.100,000 + 30% of the amount exceeding 1,000,000

Surcharge on Income Tax: 12% of the Income Tax payable, in case the total taxable income exceeds Rs.10,000,000. Surcharge shall not exceed the amount of income that exceeds Rs.10,000,000.

Education Cess: 3% of Income Tax plus Surcharge.

Tax Credit: Finance Bill 2015 is silent on the Section 87A, which was introduced by Finance Bill 2013 with effect from AY 2014-15 and provides a rebate of Rs. 2,000 for every person whose income doesn’t exceed Rs. 500,000. Hence this provision continues for AY 2016-17 as well.

ASBA - Application Supported by Blocked Amount

In January 2008 Reliance Power came out with Initial Public Offer (IPO) aggregating to Rs 11,563 crores. The issue was oversubscribed by more than 73 times and generated demand exceeding Rs 750,000 crores. Reliance Power collected application money of Rs 110,832 crores and had to refund the excess application money of Rs 99,269 crores. The entire process of application to refund took minimum 15 days. Assuming overnight interest rates of 6%, float income on the excess application money amounted to approx Rs 16 crores per day, i.e. total of Rs 240 crores for the 15 days period! That is a huge sum of money and is a leakage from investor’s perspective, the spoils of which is shared between the Issuer and the Bankers to the IPO.

How could you improve the system to make it fair to the investors? What if the investors don’t need to pay the application money upfront without knowing exactly how many shares would be allotted to them? What if the investors can pay money post allotment for the exact number of shares allotted to them and there is no requirement of refund? What if the money never leaves the investors account and he continues to earn interest, until final share allotment? What if it was possible to shorten the IPO timeline?

ASBA is the answer to all these questions.

What exactly is ASBA?

ASBA means Applications Supported by Blocked Amount (ASBA). Simply put, ASBA is a new method for making payment for IPO, right issues and Follow on public offers (FPO) made through book building route. Traditionally investors had to make payment by cheque / draft for the application amount. ASBA is an additional payment mode introduced by India's capital market regulator SEBI in September 2008, with a view to make the existing public issue process more efficient.

How is it different?

In normal payment methods such as cheque and draft, investor has to make the payment of the full application amount upfront. Depending on the level of oversubscription, shares are allotted and excess amount paid on application is refunded. The whole process typically takes 12 to 15 days.

When payment is done through ASBA, application money doesn’t leave the bank account of the investor at the time of application, but is only blocked, i.e. even though the amount remains in the account and continues to earn interest, same cannot be withdrawn or otherwise utilized by the accountholder. Once issue is closed and basis of allotment finalized, only required amount for the shares allotted is debited from the account and balance amount is free for utilization.

Advantages of ASBA

Applying through ASBA process has the following advantages:
  • Investor need not pay the application money upfront. Investor’s bank account is blocked to the extent of the application money, thus investor continue to earn interest on application money. 
  • No need to bother about refunds, as in ASBA only an amount proportionate to the securities allotted is taken from the bank account when the application is selected for allotment after the basis of allotment is finalized. 
  • Since the amount is available in the account, it is considered for calculation of the Monthly Average Balance (MAB)
  • ASBA bids can be withdrawn during the bidding period and even after the bid closure period but prior to the finalization of basis of allotment.
However please note there is no advantage as far as allotment is concerned. The chance of getting allotment is same for all the applicants whether application is made through ASBA or non-ASBA.

Why ASBA?

ASBA was introduced with a view to shorten the IPO timeline. Traditional IPO payment methods such as cheques and drafts entails payment of money upfront by the investor and refund of the excess money by the company depending on the final allotment. However under ASBA investors pay for the exact number of shares allotted and there is no requirement of refund.

Who can use ASBA?

ASBA facility can be used by any category of investors, viz. Qualified Institutional Buyers (QIB), High Networth Individuals (HNIs) and Retail investors. In April 2011, SEBI made ASBA mandatory for all non-retail investors (HNIs and QIBs) investing in public and rights issues, while it is optional for the Retail investors.

Retail investor can apply either through ASBA or through existing system of payment through cheque. If an applicant applies through both, ASBA as well as non-ASBA then both the applications having the same PAN, will be treated as multiple application and hence will be rejected.

What is SCSB?

Self certified Syndicate Bank (SCSB) is a bank which is recognized as a bank capable of providing ASBA services to investors. ASBA applications can be submitted only to SCSB with which the investor is holding the bank account. In case investor does not have an account with any of the SCSBs, then he cannot make use of the ASBA facility.

ASBA process in brief:
  1. An investor shall submit an ASBA physically or electronically through the internet banking facility, to the SCSB with whom the bank account to be blocked, is maintained. 
  2. SCSB shall then block the application money in the bank account specified in the ASBA. The application money shall remain blocked in the bank account till finalization of the basis of allotment. 
  3. The application data shall thereafter be uploaded by the SCSB in the electronic bidding system through a web enabled interface provided by the Stock Exchanges. 
  4. Once the basis of allotment is finalized, the Registrar to the Issue shall send an appropriate request to the SCSB for unblocking the relevant bank accounts and for transferring the requisite amount to the issuer’s account. 
  5. In case of withdrawal/ failure of the issue, the amount shall be unblocked by the SCSB on receipt of information from the pre-issue merchant bankers.
Way forward

Ultimate objective for SEBI is to make the IPO process smooth and hassle free for the investors. Towards this end ASBA brings significant relief. SEBI would gradually move to make ASBA compulsory for all set of investors. This would enable to compress the issue timelines significantly. We could see issue timelines shrink to 3-4 days from the current 12-15 days. We could also see SEBI moving towards e-IPO, wherein there would be no paper application involved and applying for IPO would be akin to buying any other share from the broker.

Enhancement of Section 80C Deduction Limit from Rs 100,000 to Rs 150,000

Limit for deduction under Section 80C of the Income Tax Act, 1961 has been enhanced from Rs 100,000 to Rs 150,000 in the Union Budget 2014. Enhanced deduction is applicable from Assessment Year 2015-16 corresponding to Financial Year 2014-15. Potential tax savings will be from Rs 5,000 to Rs 15,000 (excluding education cess and surcharge) depending on the applicable income tax rate of the assessee.

Section 80C is an important tax planning tool available to Individuals and Hindu Undivided Family (HUF). Not only will it benefit people with reduced tax liability but also force increased savings. Hence it is advisable to ensure maximum possible deduction under this section is availed by the assessee while computing income tax liability. Please see Saving Income Tax through Smart Tax Planning – Guide to Section 80C Deductions to understand the various eligible investments and payments allowed for this deduction.

Income Tax Rates for AY 2015-16 (FY 2014-15) - UNION BUDGET

PLEASE CLICK HERE FOR THE LATEST INCOME TAX RATES FOR AY 2016-17 (FY 2015-16).

Income Tax Rates applicable for Individuals, Hindu Undivided Family (HUF), Association of Persons (AOP) and Body of Individuals (BOI) in India as proposed in the Union Budget for FY 2014-15 is as under:

Assessment Year 2015-16, Relevant to Financial Year 2014-15 

For Individuals below 60 years age (including Woman Assessees):
Income
Tax Rate
Upto 250,000
Nil
250,000 to 500,000
10% of the amount exceeding 250,000
500,000 to 1,000,000
Rs.25,000 + 20% of the amount exceeding 500,000
1,000,000 & above
Rs.125,000 + 30% of the amount exceeding 1,000,000

For Individuals aged 60 years and above but below 80 years (Senior Citizen):
Income
Tax Rate
Upto 300,000
Nil
300,000 to 500,000
10% of the amount exceeding 300,000
500,000 to 1,000,000
Rs.20,000 + 20% of the amount exceeding 500,000
1,000,000 & above
Rs.120,000 + 30% of the amount exceeding 1,000,000

For Individuals aged 80 years and above (Very Senior Citizen):
Income
Tax Rate
Upto 500,000
Nil
500,000 to 1,000,000
20% of the amount exceeding 500,000
1,000,000 & above
Rs.100,000 + 30% of the amount exceeding 1,000,000

Tax Credit: Finance Bill 2014 is silent on the Section 87A, which was introduced by Finance Bill 2013 with effect from AY 2014-15 and provides a rebate of Rs. 2,000 for every person whose income doesn’t exceed Rs. 500,000. Hence this provision continues for AY 2015-16 as well.

Surcharge on Income Tax: 10% of the Income Tax payable, in case the total taxable income exceeds Rs.10,000,000. Surcharge shall not exceed the amount of income that exceeds Rs.10,000,000.

Education Cess: 3% of Income Tax plus Surcharge

Note: The above Income Tax rates have been proposed in the Union Budget for FY 2014-15 presented by the NDA government. These rates supersedes the proposal in the Vote On Account presented by the erstwhile UPA government pending Lok Sabha elections.