The Income Tax Act, 1961 offers several tax saving options to the salaried employees apart from different deductions like LIC premium, the interest of housing loan, etc. On one hand where deduction is something that is reduced from the total taxable income of an employee. The other hand, exemption or tax saving option is the exclusion from total taxable salary. These exemptions or saving options allow an employer to structure the Cost to the Company (CTC) of the employees in tax efficient way. One of the largely used exemptions by the employers is Leave Travel Allowance (LTA) or leave Travel Concession (LTC).
The Leave Travel Allowance is the allowance provided by an employer to its employees for traveling. This allowance can be utilized while going on a vacation with family or alone. However, to get the reimbursement, the employer needs to provide the actual bills to his/her employer. The amount that one gets as LTA differs with the employer and the position of the employee in the organization. The amount paid as LTA is tax-free under Section 10(5) of the Income Tax Act, 1961 with Rule number 2B; however, it has a pre-specified limit. Therefore, the remaining amount is taxed under the slab rates of the income tax.
Even though Leave Travel Allowance sounds simple, but it is not. There are many factors that one needs to keep in mind while traveling for the purpose of claiming LTA. This is because the income tax department has laid down many rules related to LTA claim:
Let us know Leave Travel Allowance rules to claim the exemption in detail:
The travel expenses that are eligible for LTA exemptions are given below:
The economy class airfare by the shortest route to the traveling destination is exempted.
Fare of A.C. first class through the shortest route is considered in the exemption.
The limitations of LTA are:
The employers generally do not have to provide travel proof to the tax authorities while accessing the claims of travel allowance. Even though the employers have the right to ask for documentary proof from the employees, if required, but it is not mandatory. However, it is advised to keep the travel proof with them like flight tickets, boarding passes, duty passes, and other required documentary proofs so that he/she will be able to provide them if the employer asks for it.
The advantages of Leave Travel Allowance plans are:
In a block of four years, an employee can avail the benefits of LTA for two journeys only. The block year is different than a financial year and is created by the Department of Income Tax to fulfill the purpose of LTA exemption. The Leave Travel Allowance calculation has started from the year 1986 and comprises of four years. The list of block years is –1986 – 1989, 1990 – 1993, 1994 – 97, 1998 – 2001, 2002 – 05, 2006 – 09, 2010 – 13, and so on. The present block year as per Leave Travel Allowance calculation is 2018 – 21, whereas the previous block year was 2014 – 17.
Leave Travel Allowance is not a usual part of the salary structure, however, before claiming LTA, it is recommended to check the pay structure as it may vary from one employee to other. For those who are eligible for LTA exemption, they are required to provide bills/ tickets according to the requirements and submit all those documents to the employer.
Most of the companies declare the dates to claim LTA beforehand and one then needs to fill the application form, attach documents with it, and send these documents to the accounts or HR team of the organization. An employer has to make the LTA claims before the employer provides the final calculation of the tax liabilities.
Note: The deduction of the LTA is considered for the shortest route to the place of travel and back. However, if an employee is authorized to take the LTA amount of Rs.30, 000, but he/she claims only Rs.20, 000, then the applicable deduction of LTA will be Rs.20, 000 and the remaining amount of Rs.10, 000 will be added to the income of the employee. This added money will be considered under the tax.
For claiming Leave Travel Allowance an employee has to submit the following documents:
Note: Most of the times, the employer or IT department does not require bills or tickets, but it is always good to preserve these documents.
There are some restrictions attached with Leave Travel Allowance plan. These restrictions are:
Take an example of Mr. A, who is entitled to take the LTA of Rs.25, 000 by the employer. However, if Mr. A spends only Rs.20, 000 in his travel, then the exemption will be limited to Rs.20, 000 only as it is valid for the travel expenses and expenses on accommodation, food, and shopping during travel will not be considered.