If you are a salaried employee, there are different components of your salary which allow you tax benefits. The allowances forming part of your CTC can help you reduce your taxable income from salary which ultimately brings down your tax liability. One such allowance is LTA i.e. Leave Travel Allowance. Do you know what it is and what tax exemption it entails?
What is Leave Travel Allowance (LTA)?
Leave Travel Allowance is an allowance which is granted to salaried individuals so that the expenses incurred on a vacation can be claimed as a tax exemption. Leave Travel Allowance is an allowance which employers give to their employees so that the employees can take a leave from work and travel.
Rules for claiming tax benefit on Leave Travel Allowance
If you go on a leave and you want to claim tax exemption on the Leave Travel Allowance that you receive from your employer, the following rules would have to be fulfilled –
● You should travel within India only
● If your family is travelling with you, the Leave Travel Allowance would cover the costs incurred on travelling family members. The family members considered for tax purposes would be self, spouse, children, dependent siblings and dependent parents.
● In case of children, tax exemption would be available for the expenses incurred on up to two children born on or after 1st October 1998. If your children are born before 1st October 1998, there would be no restriction on the number of children on whom you can claim an exemption for Leave Travel Allowance.
● Leave Travel Allowance would be allowed for a maximum of two journeys taken in a block of four calendar years
How much LTA is exempted from tax?
The actual costs incurred on a round trip journey from the place of origin to the city where you travel to would be allowed as an exempted Leave Travel Allowance. This journey should be taken through the shortest route by air, rail or bus. Only the ticket costs would be allowed as an exemption. Costs incurred on sightseeing, local conveyance, accommodation, food, etc. would not be allowed as an exemption. Moreover, either the
● Actual ticket cost or
● The Leave Travel Allowance granted by the employer,
whichever is lower, would be allowed as an exemption.
For instance, suppose your employer allows you a Leave Travel Allowance of INR 50,000 every year. a) You take a trip to Kerala with your spouse and two kids. The total airfare for you and your family comes to INR 45,000.
In this case, the LTA which would be allowed as an exemption would be INR 45,000. The remaining INR 5000 would form a part of your taxable salary income. Alternatively,
b) If your travel tickets cost INR 60,000, the exempted LTA would have been INR 50,000 only. Since the tax exemption cannot be claimed for an amount exceeding Leave Travel Allowance allowed by the employer.
Rules for travel fares eligible for tax exemption
As mentioned earlier, tax exemption is allowed on the travel tickets for the shortest possible route taken by rail, air or bus. However, there are rules pertaining to the cost of travel which is allowed for tax exemption. These rules are as follows –
● When the destination is not directly connected by any recognized public transport system
In this case, the exempted cost of LTA would be the cost of tickets for AC first class rail tickets for the distance of the journey taken by the shortest possible route assuming that the journey is done through a train.
● When the destination is not connected by trains but by other means of recognized public transport
In this case the exempted amount of LTA would be fare for first class or deluxe class ticket using the shortest possible route to reach the destination.
● When the destination is connected by trains
In this case the cost would be covered up to the fare for first class AC tickets of a train for the shortest possible route to reach the destination. However, travel by air and its fare would not be covered.
● For journeys performed by air
If you travel by air, tax exemption would be allowed up to a maximum limit of the cost of economy class air ticket of any national carrier.
Concept of block of four years
For the purpose of tax exemption on Leave Travel Allowance, the Government of India has specified the block of four years over which two trips can be taken for claiming LTA tax exemption. The first block started from the year 1986 and it coincides with the calendar year, i.e. from January to December. So, the block of four years as specified by the Government is as follows –
|Block 1||January 1986 to December 1989|
|Block 2||January 1990 to December 1993|
|Block 3||January 1994 to December 1997|
|Block 4||January 1998 to December 2001|
|Block 5||January 2002 to December 2005|
|Block 6||January 2006 to December 2009|
|Block 7||January 2010 to December 2013|
|Block 8||January 2014 to December 2017|
|Block 9||January 2018 to December 2021|
So, we are currently in the ninth block which started from January
2018 and would end in December 2021.
Carry forward of unclaimed Leave Travel Allowance
Two journeys are allowed in one block of four years for claiming LTA tax exemption. However, if you have not taken two journeys in a block of four years, you can carry forward the journeys to the next block of four years. However, in that case, you are required to undertake a journey in the first year of the next block to which the Leave Travel Allowance was carried forward.
For instance, in the current block, say you take only one journey in the year 2020. In the next block of four years which begins from January 2022, you can carry forward one journey which is remaining in the current block. However, that journey should be completed in the year 2022 itself. You cannot carry forward the carried over journey to 2023.
How to claim Leave Travel Allowance?
To claim tax exemption on Leave Travel Allowance, you are required to submit the proof of your travel and expenses incurred. This proof would be your original travel tickets for the travel that you do,boarding pass etc. Your employer would ask you to submit your travel proofs within a specified time in Form 12BB so that the LTA exemption can be calculated. Some employers might not even ask the original papers for the travel tickets but you should keep them handy in case they are required for tax filing purposes.
So, if you are a salaried employee, find out the Leave Travel Allowance granted by your employer and then use this allowance to claim tax exemption on the trips that you take with your family. While travelling would allow you to relax, the costs incurred would help you bring down your tax liability through LTA tax exemption.
● Is travelling on official holiday covered under LTA exemption?
This actually depends on the practices of the employer. Some employers allow tax exemptions if travelling is done on official holidays while some employers allow tax exemptions only when you take a leave from work to travel.
● If my uncle is travelling with me, can I claim tax exemption on his tickets?
No, tax exemption is allowed only on the travelling cost incurred for self, spouse, dependent children, dependent parents and dependent siblings.
CA Abhishek Soni
Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.