LTA or leave travel concession is the allowance paid by your employer to cover your travel expenses, while you go on leave with or without your family. LTA forms a part of your cost to company (CTC) and is given as a yearly benefit but can be availed of monthly. In this article, we will discuss about Leave Travel Allowance (LTA) Tax Exemption, Eligibility, Rules & Claims.
The Income Tax Act, 1961 provides various exemptions to salaried class. Exemption means exclusion from total taxable income. Such exemptions enable the employers to structure Cost to Company (CTC) of employees in a tax efficient manner.
One of such exemptions available to salaried class under the law and also widely used by employers is Leave Travel Allowance (LTA) /Leave Travel Concession (LTC). LTA exemption is also available for LTA received from former employer w.r.t travel after the retirement of service or termination of service.
LTA is a type of allowance which is provided by the employer to his employee who is travelling on leave from work to cover his travel expenses
LTA is an important component of the salary of the employee as it is eligible for income tax exemption as per section 10(5) of the IT Act, 1961
LTA received by the employer will not be a part of his net income of the year
Value of LTA provided to High Court (HC) or Supreme Court (SC) Judge & members of his family are completely exempt from tax without any conditions.
The eligible criteria/condition for claiming LTA
1. LTA can only be claimed on actual travel cost. Actual journey is a must to claim the exemption. All the mediums of the travel i.e. road, rail or air are claimable under LTA. However, employee must submit a valid proof of cost to claim the LTA.
2. LTA can be claimed only on travel expense. Food or stay or any such expenses excluding travel cannot be part of it. LTA is exempt from tax
3. LTA can only be claimed on domestic travel expenses. You cannot claim LTA on the expenses incurred during the international trip (if any) of the employee
4. Employee cannot claim LTA in every financial year. LTA can be claimed only for two journeys in a block of 4 calendar years. The block years for LTA purposes are decided by government. The current running block for claiming LTA is calendar years 2018-2021. The last running block for LTA was 2014-2017
5. LTA can only be claimed when the employee has been on leave from work for travelling purpose, the employee should mark the period as “leave”. For example – Sanju went on a holiday to Manali with his family and friends. He received Rs 50,000 as LTA from his employer. However, he spent Rs 30,000 for the air tickets of his family. The total LTA exemption he can claim is Rs 30,000, an amount he spent. The balance amount of Rs 20,000 received as LTA will be added in his taxable income.
Expenses that can be included in LTA
Tax benefits are available only on actual travel expenses incurred on rail, road or air fares only subject to the following condition:-
- Travel by Air – The air fare of the economy class of the national carrier (Air India) by the shortest route or the actual expenditure incurred, whichever is less, can be claimed as tax exemption.
- Travel by Train – If the place of origin & destination is connected by rail & journey is performed by any mode of transport other than air, then the first class AC rail fare by the shortest route or the actual expenditure incurred, whichever is less, can be claimed as tax exemption.
- Travel by Other Modes
a)If the place of origin & destination of the journey are not connected by rail but a recognized mode of transport exists for the route then the first class or deluxe class fare for the shortest route for the recognized mode of transport or the actual expenditure incurred, whichever is less, can be claimed as tax exemption.
b) However, if there is no recognized mode of transport for the route, then the amount equivalent to the first class A.C. rail fare of the distance covered assuming that the journey has been performed by rail can be claimed as tax exemption.
Procedure of claiming LTA
It is generally employer specific. Every employer announces the due date within which LTA can be claimed by the employees & may require employees to submit proof of travel such as tickets, boarding pass, invoice provided by travel agent etc along with the mandatory declaration. It is not mandatory for employers to collect proof of travel, it is always advisable for employees to keep copies for his/her records & also to submit to employer based on LTA policy of the company/to tax authorities on demand.
Carry Forward of the unclaimed LTA of a block year to the next block year
If the employee has not claimed LTA in the last running block or just claimed it once, he can still claim one additional LTA in the next block of calendar years under the carry over concession rules under which an employee can claim LTA tax break on 3 journeys made in current block of years. However, in order to utilize the carry over concession facility, one LTA exemption with respect to journey must be claimed in first calendar year of next block.
For example – If an employee had just claimed one tax exemption under LTA in last block of year i.e. between 2014-2017. Now, he is eligible to make LTA claims up to 3 journeys in current block i.e. between 2018-2021. However, his first claim must be made in first calendar year of current block i.e. 2018.
Who are included in the travel cost claimed for tax benefit under LTA?
- LTA tax exemption claim can be made for domestic travel of self or family members. The family members include your spouse & children, dependent parents & siblings.
- LTA tax benefits is not available for more than 2 children if born after October 1, 1998. This restriction does not apply to children born before this date.
LTA claim in case of Multi -Destination journey
If an employee makes a journey to multiple destinations while travelling, the tax exemption under LTA can be claimed only on admissible expenses incurred on shortest route available from place of origin & farthest point of journey.
Whether is it necessary to submit travel cost bill to the employer – Income Tax Act does not mandate the employer to collect proof of expenses claimed for LTA tax benefits, but it is advisable to keep such bills safe to justify the expenses in case tax authorities demands it.
Therefore, it is not necessary to submit such bills of expenses to employer, but tax authority can demand it by issuing a notice.
What happens to LTA, if a person doesn’t travel at all or doesn’t submit travel bills
Since LTA is a component of salary structure itself, it gets credited to account as part of his salary on a regular basis. However, if he doesn’t travel at all or don’t have valid proof of travel, then he cannot claim LTA received for tax exemption purpose & the LTA received will be added to your net taxable income.
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