Leave Travel Allowance (LTA): The Income Tax Act of 1961 offers the salaried class a number of exemptions in addition to deductions for things like LIC premiums and mortgage interest. Deductions are taken out of your total taxable income, whereas exemptions are excluded from your total taxable income. These exemptions give employers the ability to tax-effectively structure the Cost to Company (CTC) of employees.
Leave Travel Allowance (LTA)/Leave Travel Concession (LTC) is one such exemption that the law grants to the salaried class and is frequently utilized by employers. In addition, LTA received from a former employer with regard to travel after retirement or termination of employment is eligible for LTA exemption.
What is Leave Travel Allowance (LTA)?
An employee may receive a Leave Travel Allowance from their employer for travel to any location in India while on leave, after retirement, or after their employment has ended. Even though it might seem straightforward, there are a lot of things to consider before you decide to request an LTA exemption. The following rules for claiming LTA exemption have been established by Income Tax Law.
Who can claim LTA?
Only individuals can claim LTA for travel costs incurred for themselves and their family (Spouse, children, wholly or mainly dependent siblings, parents). The tax exemption of leave travel allowance is not available in case you choose the new tax regime.
Eligibility for claiming LTA:
- You must actually travel to receive the exemption.
- Only domestic travel, or travel within India, is taken into account for exemption. No international travel is covered by LTA.
- The employee is eligible for the travel exemption whether they are traveling alone or with their family, which includes their spouse, kids, parents who are completely or primarily dependent on them, siblings, and other blood relatives.
- Further, such an exemption is not available for more than two children of an employee born after 1 October 1998. Children born before 1 October 1998 do not have any restrictions. Further, in cases of multiple births on a second occasion after having one child is also not affected by this restriction.
Only the actual travel expenses, such as the employee’s air, rail, or bus fares, are eligible for the exemption. No expenses like local transportation, sightseeing, hotel stays, meals, etc. qualify for this exemption. Additionally, only LTA provided by the employer is exempt.
For example, if LTA granted by the employer is Rs 40,000, and the actual travel cost incurred by the employee is Rs 15,000, then only Rs 15,000 will be available as an exemption and the balance of Rs 25,000 would be included in taxable salary income.
|Journey through (Mode of travel)
|Limit under LTA
|The amount is restricted to the air economy fare of the national carrier(Indian Airlines or Air India) by the shortest route to the place of destination.
|Any other mode:
|Rail service is available
|Amount restricted to air-conditioned first class rail fare by the shortest route to the place of destination
|Rail service is not available
|No recognised public transport system
|Amount not more than 1st class rail fare, for the distance of the journey by the shortest route, as if the journey had been performed by rail.
|Recognised public transport system exists
|The amount restricted to 1st class or deluxe class fare by the shortest route to the place of destination
An LTA exemption is available for only two journeys performed in a block of four calendar years.
A block year is different from a financial year and is decided by the Government for LTA exemption purposes. It comprises 4 years each. The very first 4-year block commenced in 1986. The list of block years is 1986-1989, 1990-93, 1994-97, 1998-2001, 2002-05, 2006-09, 2010-13 and so on. The block applicable for the current period is the calendar year 2018-21. The previous block was the calendar year 2014-17.
Carryover of LTA
In case an employee has not availed exemption with respect to one or two journeys in any of the block of 4 years, he is allowed to carryover such exemption to the next block provided he avails this benefit, in the first calendar year of immediately succeeding block.
LTA claiming Procedure
LTA claim procedures are typically employer-specific. Every employer publishes the deadline by which LTA claims must be made by employees, and they may ask them to submit additional documentation, such as tickets, boarding passes, invoices from travel agencies, etc., in addition to the mandatory declaration. Although collecting proof of travel is not a requirement for employers, it is always advisable for employees to keep copies for their records and to submit them to their employers in accordance with the LTA policy of the company or to tax authorities upon request.
LTA Exemption for Vacation on Holidays
Many organisations that go strictly by the wordings of the income tax provision are allowing employees to claim LTA only if the employee applies for leaves and travel during that time. Such organisations may reject LTA claims for travel on official holidays or weekends.
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