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:
Rules of Claiming Leave Travel Allowance
Let us know Leave Travel Allowance rules to claim the exemption in detail:
- The LTA does not cover international trips. One can travel anywhere in India.
- Leave Travel Allowance exemption is not applicable if an employee gets its cash without traveling to any place. In this case, the entire LTA amount becomes taxable.
- Even the family of the employee can travel with the employee and can claim the exemption under Section 10(5) of the Income Tax Act. Here, the family refers to the spouse of the employee, up to two children, and completely dependent siblings or parents.
- It is only the cost of travel that is taken into consideration for tax exemption. There are no other costs that qualify for this exemption.
- An employee can make the claim for LTA two times in a block of four years.
Leave Travel Allowance Eligible Exemptions
The travel expenses that are eligible for LTA exemptions are given below:
When traveling by Air
The economy class airfare by the shortest route to the traveling destination is exempted.
When traveling by Rail
Fare of A.C. first class through the shortest route is considered in the exemption.
- If the place of origin and destination is connected by the rail route but the journey is performed by other transportation modes.
- If the place of origin and destination is not connected by the rail route (fully or partially) but is connected by other known Public transport.
- If the place of origin and destination is not connected by rail (fully or partially) and not connected by some other recognized transport (Public) system as well.
Leave Travel Allowance Limitations
The limitations of LTA are:
- A Leave Travel Allowance does not cover international travel instead it covers domestic travel only.
- The mode of travel can be rail, air, or other public transport.
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.
Advantages of Leave Travel Allowance
The advantages of Leave Travel Allowance plans are:
- LTA or Leave Travel Allowance plays an important role in the salary structure of an employee as it helps to save tax.
- One can claim for the travel tickets and fare in India only. It is to be noted that the expenses incurred for stay and others are not considered in LTA claim.
- It is the duty of the employee to keep the travel-related bills and use them for tax saving.
- The LTA plan is added to the salary of the employee as per his/her pay scale, title, and position in the organization. In this way, one can avail the benefits of LTA only if this component is added in his/her salary.
- This benefit can be availed for both solo and family travel.
- The travel expenses of the family members of the employee are covered in the Leave Travel Allowance. The family members that are covered in LTA are – spouse, children, and only dependent parents and siblings.
Leave Travel Allowance Calculation
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.
How to Claim Leave Travel Allowance
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.
Required Documents for Claiming Tax
For claiming Leave Travel Allowance an employee has to submit the following documents:
- LTA application form with travel bills.
- Tickets (air, train, or other public transport)
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.
Restrictions on Leave Travel Allowance
There are some restrictions attached with Leave Travel Allowance plan. These restrictions are:
- It is available for travel expenses only.
- Any individual entitled to take the benefits of LTA can take it for traveling in India only.
- For tax auditing purpose, it is recommended to keep the record of travel in the form of travel proof.
- The Leave Travel Allowance exemption is available for two children only who are born after October 1, 1998.
- In a block of four years, one can claim LTA for two times only.
- If one has not claimed LTA in a particular block year, then it can be carried to the next block year and can be used in the 1st year of the next block only.
- The Leave Travel Allowance exemption can be availed for the family of an individual as well. Under family, the LTA covers only the immediate family members of an individual such as a spouse, up to two children, dependent parents and children.
Example of LTA
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.
FAQs on Leave Travel Allowance Plan
1: What does Leave Travel Allowance cover?
Answer: As the name of this allowance says, it only covers the travel expenses that incur while traveling.
2: Who is eligible to take the benefits of LTA?
Answer: Any employee whose employer has added the LTA cover in his/her salary structure can avail its benefits. However, the cover is limit for the employer and his/her immediate family members only.
3: Does LTA permit international travel?
Answer: No, Leave Travel Allowance does not cover international travel.
4: How many times can one claim LTA?
Answer: An individual can make claims for LTA twice in a block of four years.
5: Is it possible to carry forward Leave Travel Allowance?
Answer: If an individual is not able to utilize his/her LTA in current block year, then it can be carried forward to the next block.
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