Taxation on Encashment of Leave Travel Allowance
In the corporate structure, employees will be provided various benefits and payments which would help them cover many expenses and also stay active such that they are not burned out which will affect their performance and productivity levels. LTA is one of such payments made by employers to employees and the tax implication of the same has been discussed in this article.
What is Leave Travel Allowance (LTA)?
This is an allowance or assistance which is provided by an employer to the employee for traveling on leave. Despite having a simple name, for availing any exemption connected with such payment or assistance received from the employer, the employee should make proper planning for the travel purpose such that he is eligible. There are proper provisions laid by the Income Tax Rules for availing LTA exemption.
Conditions to be met for Claiming LTA Exemption
The following can be understood as the conditions which should be satisfied by the taxpayer or employee for gaining the eligibility to claim the exemption:
- The employee should have traveled or actually conducted a journey
- Only domestic traveling shall be considered for the purpose of providing exemption, this means traveling within India and no international travel shall be allowed.
- The exemption for travel is available for the employee alone or with his family, where ‘family’ includes the employee’s spouse, children, and wholly or mainly dependent parents, brothers, and sisters of the employee. Additionally, such an exemption is not made available for more than a total of two children of a worker or an employee, in case a child was born after 1 October 1998. In the case of Children born before 1 October 1998, no restriction shall be applicable. Further, in cases of multiple births on a second occasion after having one child shall also not be affected by this restriction.
LTA Exemption which is Eligible
– The LTA exemption shall be available only on actual travel costs like the airfare, rail fare, or bus fare.
– But expenses like loyal conveyance, hotel accommodation, food, etc. shall not be included in such exemption.
– And it shall also be limited to the amount actually received from the employer as LTA.
Say, the traveling cost of the employee was INR 50,000 but the LTA received from the employer was INR 35,000. So, the LTA exemption was limited to INR 35,000 which is the amount received from the employer.
Exemption Provided for Different Modes of Transportation
|SL. NO||IN CASE||ELIGIBLE EXEMPTION|
|1||Place of travelling and destination are not connected by any public transport system which is recognized||The amount which is equivalent to the fare of the air-conditioned first-class rail or train, for the distance of the travelling by the shortest or straightest route, as if the journey had been performed by rail or the train system.|
|2||Place of travel and destination are not connected by rail or train system (partly/fully) but connected by other recognized public transport systems||The amount shall be limited to the fare of first-class or deluxe class by the shortest or the straightest route to the place of destination.|
|3||Place of travel and destination are connected by means of train or rail||The amount expended for any mode of transport other than by air, limited to air-conditioned first-class rail fare by the shortest or the straightest route to the place or destination to which the person is travelling.|
|4||Travels which are conducted by air||The amount is limited to the economy fare on air and of the national carrier (say, Indian Airlines or Air India) by the shortest or straightest possible route to the place ordestination.|
Claiming LTA Exemption w.r.t Every Vacation
LTA exemption shall be made available to the employee for only two journeys performed in a block of 4 calendar years.
A block is year is not as same as a financial year and is decided by the Government for the purpose of availing LTA exemptions. It comprises 4 years each, where the first 4-year block commenced during the year 1986. So, the block years are:
- 1994-1997 and so on.
The block which is going on now is the 2018-21 block and this shall be succeeded by 2022-2025.
Carryover of Unclaimed LTA
In case an employee has not availed LTA exemption with respect to one or two journeys in any of the block of 4 years, he is allowed to carry over such exception to the block that comes next provided that he avails this benefit, in the first relevant year or the calendar year which belongs to the immediately succeeding block.
Procedure to Claim LTA
The procedure for claiming LTA is employer-specific. An employer will declare the due date within which an employee can claim LTA along with requiring them to submit proof for traveling such as tickets, boarding passes, the invoice which has been provided by travel agents.
Hence, employees are always advised to collect and keep copies of such travel for being provided on demand to the employer or the tax authorities such that the same can be claimed with ease.
Income Tax Act provides exemption with respect to travel cost which is incurred by an employee on leave to any place in India. Along with conditions pertaining to the mode of transport it also makes reference to the place of origin to the place of destination with the specification that the route must be the shortest available route. So, an employee who is traveling to multiple places in a single vacation can avail exemption for the travel cost eligible from the place of origin to the farthest place in the vacation by the shortest and straightest route which is possible.