Imagine you are embarking on a family vacation. You first book your train tickets to Kolkata for an underwater metro ride, then move to the legendary palaces of Rajasthan, and, lastly, end your journey in Himachal Pradesh’s peaceful landscapes. Along with the entire revelry of planning and packing, there’s an abrupt surprise: your employer may end up sponsoring a part of your trip through Leave Travel Allowance (LTA).
Leave Travel Allowance (LTA) is provided to employees to reimburse travel expenses, typically for personal travel. Section 10(5) of the Income Tax Act offers an exemption from LTA on fulfilment of specific conditions. LTA exemption is also present for LTA obtained from the previous employer with respect to travel following the retirement service or culmination of service.
LTA can be demanded for any 2 years in a block of 4 calendar years. The present block year for asserting LTA is 2022 to 2025. The tax exemption on leave travel allowance is not present if you select the new tax regime.
What is Leave Travel Allowance (LTA)
Under the provisions of the Income Tax Act, Leave Travel Concession/Leave Travel Allowance is a kind of allowance offered by an employer to their employee for journeying to any place in India.
It can be granted either on leave, following retirement or after the culmination of his service.
LTA Exemption Section 10(5)
If you fly by air, the exemption amount will be either your real travel expenses or the expense of an economy class ticket, whichever is less. The trip should be performed via the shortest route to the destination.
Who Can Claim LTA?
Only persons (residents and non-residents) can demand LTA for travel expenses incurred for themselves and their family (children, spouse, wholly or primarily dependent parents, siblings).
Conditions for Claiming LTA?
Let us know the requirements/conditions for demanding the exemption:
Only domestic travel is relevant for exemption, i.e., travel inside India. No global travel comes under LTA/LTC
The exemption for travel is present for the employee, solely or with their family. ’Family’ comprises
- Children
- Spouse
- Dependent parents
- Sisters and brothers of the employee.
Moreover, such an exemption is not present for over two children of an employee. If twins are born after the initial child, the limitation is not applicable.
- LTA is applicable for all three children.
- Legal Proof of travel is essential to demand the exemption.
- The exemption applies to a specific class of tickets.
- You cannot claim expenses like accommodation and food.
LTC/LTA Exemption
- The exemption is present only on the real travel expenses, i.e., the rail, the air or the bus fare incurred by the employee.
- No costs such as local travel, hotel accommodation, sightseeing, food, etc., are qualified for this exemption.
- Exemption is applicable only to the extent of the allowance issued by the employer. Suppose an employer gives the employee Rs 30,000 as LTA, but the employee only has travel expenses of Rs 20,000. Rs 20,000 alone will be brought under tax relief, and the balance Rs 10,000 will have to be taxed.
Which Travel Expenses Fall under LTA?
According to the Indian Income Tax Act, the expenses below can be met under LTA:
- Destination: LTA is limited to travel within India. The employees are allowed to claim expenses on shifting to any location in India during their leave period.
- Travel Costs: LTA includes the cost of travel for the employee and their immediate family members (children, spouse, and dependent siblings or parents). The travel can be performed either by rail, air, or public transportation, according to the specific rules outlined by the employer or the Income Tax Department.
- Mode of Travel: LTA covers costs incurred on travel by train, air, or other public transportation. The expenses are liable for reimbursement depending on the real amount spent or according to the limits defined by the tax authorities or the employer.
- Leave Duration: LTA is claimable for travel during the employee’s leave duration, which may comprise casual leave, annual leave, or any other type of accepted leave.
LTA Exemptions for Various Types of Transportation
Discover below the LTA exemptions regarding various modes of transportation,
Rail Travel: If the source and destination are linked by rail, the First-Class AC rail charge is by the shortest route or the real amount spent, whichever is less.
Other Types of Transport:
Recognised Modes: If an identified type of transport is available for the route, the deluxe class or first-class charge for the shortest route or the actual costs incurred, whichever is less.
No Identified Mode: Where there is no identified mode of transport, the aggregate value equivalent to the first-class AC fare for the distance travelled by train mode is claimable.
LTA eligibility: To be eligible for LTA, you should meet specific criteria:
- Domestic travel: As mentioned above, only domestic travel expenses in India are eligible for LTA exemption. This comprises travel by rail, air, or road to any destination inside the country.
- Proof of Travel: You need to offer proof of travel, like tickets and boarding passes, to claim LTA. These documents are required to justify your claim for exemption.
- Travel During Leave: The travel should be undertaken during the duration of leave. This implies you must be on leave from work when you journey to claim LTA.
- Employment: LTA is payable by employers to their employees as part of the salary package. So, it is essential to be employed and possess LTA as a part of your salary structure.
For LTA exemption, the allowance that really needs to be exempted must be decided based on the actual travel costs incurred.
The exemption pertains to the expense of tickets for transport from the place of origin of the employee to the destination and back, by the most effective and shortest route, whether by rail, air or bus.
It is essential to bear in mind that any other costs like accommodation, sightseeing, food expenses, shopping or similar other expenditures do not come under LTA exemption.
If the LTA provided by the employer is less than the total travel expenditure, then the exemption amount would correspond to the employer’s specified LTA amount.
LTA Tax Exemption Rules
As per the LTA tax exemption rules, an employee can assert the exemption for two trips within a block of 4 years. This implies that if you have already demanded an LTA exemption for two visits in the present block, you won’t be qualified for the exemption again until the next block commences.
However, if you don’t use your LTA in a specific block, you can still carry over one unused LTA to the initial year of the next block.
For example, if you did not claim an LTA exemption for the 2018-2021 block, you can claim it for the 2022 block, which is the first year of the subsequent block.
Let’s say you didn’t use an LTA exemption for the 2018-2021 block. In this case, you can ask for it in 2022, which starts the next block.
To get LTA exemptions, follow these steps:
Keep Your Travel Papers: Hold on to your full travel ticket, boarding passes, and receipts. You’ll need these to show you’re entitled to LTA.
Employer Verification: Your employer will authenticate your claim and, if lawful, allow you the tax exemption while submitting your Form 16.
Popular Mistakes to Prevent
- Ineligible Costs: Depositing bills for meals or hotel stays won’t qualify.
- Misunderstanding the Block Period: Maintain track of the block periods to prevent omitting exemptions.
- Incomplete Documentation: Claims without relevant tickets or receipts will be denied.
- Missed Deadlines: Always assert your LTA within the specified timeframe fixed by your employer.
Final Thoughts
Getting a handle on Leave Travel Allowance (LTA) and its tax breaks can help you get the most out of this perk. If you meet the requirements and follow the right steps to claim LTA, you can avoid paying big taxes when you travel around India. LTA is a great benefit that gives you money for your trips and saves you a bunch on taxes. When you know the rules and stick to the proper way to claim your LTA, you’ll be able to use this benefit to its fullest.
Therefore, the next time you plan a holiday, don’t forget to utilise your LTA and get a tax-free holiday in India. Having the right travel insurance coverage will ensure that your health and safety are well-attended to during your travels, making your vacation really hassle-free and enjoyable.
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