Leave Travel Allowance is a tax-free allowance employers offer employees as part of their salary component. Under this allowance, the costs incurred by the employee on taking a trip for leisure purposes are allowed as a tax-free expense. Employees can, therefore, take a leave from work and travel on vacation, and the costs incurred would be allowed as a tax-free allowance by the employer. The exemption is allowed twice in a block of four years. Employees must submit the bills and travel documents to their employer to avail of the LTA tax benefit. The exemption is allowed only for the expenses incurred during the travel period and is subject to certain conditions.
What is Leave Travel Allowance (LTA)?
Leave Travel Allowance (LTA) is a type of allowance which is provided by the employer to his employee who is travelling on leave from the 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 the Income Tax Act, 1961. Under Section 10(5) of the Income Tax Act, the LTA received by the employee will not be a part of his net income of the year.
LTA Exemption Section
The employee’s travel expenses are the only ones covered by the exemption. The tax exemption would not apply to expenditures accrued during the whole journey, which may include things like meals, shopping, and other expenses. More than two children of a parent born after October 1, 1998, are not eligible for the exemption.
Just two trips within four years are allowed to be exempt. The latest block spans the years 2014 to 2017. The exception will be carried over to the next block if the user does not use it during this block.
Expenses exempted under LTA Allowance
- Travel by plane: The cheapest airfare using the shortest route or the amount paid, whichever is less, would be omitted.
- Travel by rail: A.C. first-class fare from the shortest path or the amount expended on travel, whichever is less, would be removed.
- The origin and destination points of the journey are linked by train, but the journey is completed by another means of transportation.
- The origin and destination locations are not linked by rail (partly or completely) but are connected by another recognized public transportation system.
- The origin and destination locations are not linked by rail (partly or completely) but are connected by another recognized public transportation system.
Who can claim LTA this year?
The employee must actually travel to be eligible for LTA. Claiming LTA without actually traveling is not permitted.
- The vacation should be taken only within India.
- Costs incurred for family members who travel with the employee would also be allowed as an exemption. The family members for this purpose would include spouses, children, dependent parents, and dependent siblings.
- LTA components must be included in the employee’s salary structure.
- The exemption can be claimed for up to two children born on or after 1 October 1998. There would be no restriction for children born before this date. The exemption can be claimed for all dependent children traveling with the employee born before 1 October 1998. Further, multiple births on a second occasion after having one child are also not affected by this restriction.
- LTC exemption would be allowed for up to two journeys taken within a block of four calendar years. Block year refers to a specific period of four years, during which an employee is allowed to claim LTA for up to two trips. The current block year for claiming LTA started in 2022 and will end in 2025. If an employee does not claim LTA during the current block year, they are allowed to carry over such exemption to the next block provided they avail of this benefit in the first calendar year of the immediately succeeding block. After that, the unused LTA entitlement for the current block year is forfeited, and the employee will need to wait for the next block year to claim LTA again.
- LTA can be claimed for travel by any mode of transport, including air, train, or road.
- No LTA is allowed for hotel accommodation and food.
What is the eligibility of LTA exemption?
The quantum of LTA exemption, which can be claimed as a tax-free expense, depends on the actual cost incurred on travel. The expense incurred on booking a journey from the employee’s place of origin to the place of travel and back is allowed as an LTA exemption. The journey should, however, be undertaken using the shortest possible route, which is air, rail, or bus. Only the cost of tickets booked for travel would be allowed as an exemption. Costs incurred on conveyance, sightseeing, accommodation, shopping, food, etc., would not be allowed. If the LTA allowance offered by the employer is lower than the actual cost incurred on traveling, the exemption would be limited to the LTA allowed by the employer and not the actual costs incurred.
For instance, if the employer allows an LTA of INR 25,000 and the employee incurs travel costs of INR 35,000 on booking travel tickets, LTA exemption can be claimed only for INR 25,000.
On the other hand, if the employee incurs a cost of INR 20,000, the exemption allowed would be INR 20,000 since it is lower than the actual LTC the employer allows.
Leave Travel Allowance Exemption Rules for Various Modes of Transport
The actual travel costs incurred on travel allowed for LTA exemption are determined based on the following rules.
- When the destination is not connected by any recognized public transport system directly If the destination is not connected directly by a recognized public transport, the exempted travel costs would be considered to be the fare of AC first-class rail tickets from the origin city to the destination city, assuming the journey is made by rail, and the shortest route is taken.
- When the destination is connected by all recognized public transport other than trains, If other modes of public transport connect the destination, but there is no train connectivity, the exempted cost would be the fare of first class or deluxe class on such transport for the journey taken using the shortest route.
- When the destination is connected by trains If the destination is connected by trains, the exempted cost would be the fare of an AC first-class train ticket for the shortest route, whether the journey has been taken by train or not.
- When the employee travels by air If the employee travels by air, the exempted cost would be the fare for economy class of a national carrier using the shortest route.
If you are planning to claim LTA against air travel, these are the things to keep in mind:-
Exemption for travel expenses is exclusively limited to domestic travel within India; international travel is not covered under LTA/LTC provisions.
- The exemption extends to the employee alone or with their family, including the employee’s spouse, children, and wholly or mainly dependent parents and siblings.
- For air travel, reimbursement is limited to the cost of an economy-class ticket via Air India for the shortest route to the destination or the actual expenditure, whichever is lower.
- Expenses such as local conveyance, sightseeing, hotel stays, and meals are not eligible for exemption. It’s important to note that this exemption is solely applicable to LTA provided by the employer.
FAQs
How many times can LTA be claimed for tax exemption?
LTA can be claimed for tax exemption twice in a block of four calendar years. The current block period is 2022-2025.
If the employee doesn’t claim LTA in one block period, they can carry forward one journey to the next block.
Can both husband and wife claim LTA?
Yes, if both spouses receive LTA as part of their salary package, they can both claim LTA. However, they cannot claim exemption for the same journey.
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