Salaried individuals are eligible for various tax exemptions under the Income Tax Act, 1961, in addition to deductions for housing loan interest and LIC premiums. Exemptions exclude certain kinds of income from being taxed, whereas deductions reduce your overall taxable income. This enables companies to create a cost-to-company (CTC) package for an employee in a way that minimizes taxes.
One such legal exemption that is commonly used by employers and available to the salaried class is the Leave Travel Allowance (LTA) or Leave Travel Concession (LTC). For LTAs received from a previous employer about travel after retirement or termination of employment, there is also an LTA exemption. Within a four-year block, LTA can be claimed for any two of those years. 2022–2025 is the current block year for LTA claims. If you decide to follow the new tax regime, you will not be eligible for the tax exemption of the leave travel allowance.
What is Leave Travel Allowance (LTA)?
An employee may receive a Leave Travel Allowance from their company to travel to any place in India while on leave, after retirement, or after the termination of their employment. Even though it seems straightforward, there are a lot of things to keep in mind before filing for an LTA exemption.
Who can claim LTA?
Only individuals are eligible to claim LTA for travel expenses incurred for themselves and their families (spouse, children, parents, and siblings who are totally or mostly dependent on them).
Conditions for Claiming LTA
- To be eligible for the exemption, the journey must actually occur.
- Only domestic travel—that is, travel inside India—is eligible for exemption. Under LTA, no foreign travel is covered.
- The employee is eligible for the travel exemption for himself or herself or his family (spouse, children, parents, or siblings who are totally or mostly dependent on him or her).
- Moreover, the employee is not eligible for this exemption if he has more than two children born after October 1, 1998. Prior to October 1, 1998, children were exempt from all restrictions. Additionally, this restriction does not apply to multiple births that occur on a second occasion after the delivery of one child.
Amount of LTA Exemption
The employee’s actual travel expenses, such as their bus, rail, or airline fare, are the only costs for which the exemption is allowed. This exemption does not apply to costs for local transportation, sightseeing, food, accommodation, etc. Additionally, only LTAs given by the employer are exempt.
For instance, only Rs 20,000 will be available as an exemption, and the remaining Rs 10,000 will be included in taxable wage income if the company grants an LTA of Rs 30,000 but the employee actually pays Rs 20,000 in travel expenses.
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Exemption w.r.t. various modes of transport
| S. No. | Mode of travel | Exemption Limit under LTA |
|---|---|---|
|
1 |
Air |
Lower of the below:
|
|
2 |
Any other mode of travel: |
- |
|
i) |
Rail service is available |
Lower of the below:
|
|
ii) |
Rail service is not available |
- |
|
a) |
If recognised public transport system exists |
Lower of the below:
|
|
b) |
If recognised public transport system doesn’t exist |
Lower of the below:
|
Can LTA exemptions be claimed on every vacation?
Block Year
Carryover of Unclaimed LTA
If an employee does not use the exemption for one or two journeys during a four-year block, he may carry over the exemption to the next block if he uses the benefit in the first calendar year of the next block of four years.
Procedure to Claim LTA
The process for claiming the exemption for leave travel allowance (LTA) is usually employer-specific. Every employer sets the deadline for employees to claim LTA and may demand employees provide evidence of travel, such as tickets, boarding passes, invoices issued by travel agents, and so on, along with the mandatory declaration. Even if it’s not required, employees should always keep copies of their evidence of travel for their records and provide it to the employer upon request, in accordance with the company’s LTA policy, or to tax authorities.
Multi-Destination journey
A provision pertaining to income tax exempts travel expenses paid while on leave to any place in India. Conditions relevant to the type of transportation also refer to the ‘origin’ to the ‘destination’ and the route, which must be the shortest route available.
As a result, if an employee takes a single vacation and visits multiple locations, they are only eligible for the exemption for the cost of the trip from their place of origin to the vacation’s furthest destination by the shortest route available.
LTA Exemption for Vacation on Holidays
Many companies follow strictly the provisions of the income tax and allow only those employees to claim the exemption for leave travel allowance (LTA) if they take leaves and travel during that period. Travel on official holidays or weekends may result in the rejection of LTA claims by these companies.
Conclusion
Leave Travel Allowance (LTA) is a crucial perk that empowers employees to balance work and leisure. By easing travel expenses, it enhances well-being, underscores employer support, and reinforces a positive workplace dynamic, ensuring a healthier, happier workforce.
Frequently Asked Questions (FAQ)
A travel allowance is an allowance offered to employees to help them cover the costs of business travel. Employees who spend money on work-related activities have the right to ask their employers to repay them. To the extent that they are business expenses, the reimbursement would not be taxable.
The following requirements must be fulfilled in order to be eligible to submit an LTA claim:
- An LTA claim may be made for actual travel expenses for any mode of transportation.
- Employees must provide valid evidence of their travel expenses.
- For an LTA claim, only travel expenses are acceptable.
The exemption also applies only to LTAs granted by the employer. For instance, only Rs 20,000 will be available as an exemption, and the remaining Rs 10,000 will be included in taxable salaries if the company grants an LTA of Rs 30,000 but the employee actually pays Rs 20,000 in travel expenses.
The exemption for leave travel allowance can be claimed for domestic travel expenses only. If the employee has any expenses related to their international vacation, you are not eligible to claim LTA. It is important to remember that the employee is not eligible to claim LTA for each fiscal year. LTA is only eligible for two trips throughout a four-year period.
If the LTA provided by the employer is INR 35,000 and the employee’s real qualified cost of travel is INR 25,000, the exemption will be granted on just INR 25,000, with the remaining INR 10,000 being included in taxable pay income.
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