As per para 5.2(10) of CIRCULAR NO. 1/2010 [F. NO. 275/192/2009 IT(B)], DATED 11-1-2010 of the Income Tax Department the transport allowance to the extent of Rs. 800/- only will be exempt for Income Tax. Extract of relevant paragraph is given below:
The CBDT has prescribed guidelines for the purpose of sub-clauses (i) and (ii) of section 10(14) vide Notification No. SO 617(E), dated 7th July, 1995 (F. No. 142/9/95-TPL) which has been amended vide Notification SO No. 403(E), dated 24-4-2000 (F. No. 142/34/99-TPL). The transport allowance granted to an employee to meet his expenditure for the purpose of commuting between the place of his residence and the place of duty is exempt to the extent of Rs. 800 per month vide Notification S.O. No. 395(E), dated 13-5-1998.
Link to original notification http://law.incometaxindia.gov.in/TaxmannDit/DisplayPage/dpage1.aspx?md=1
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