In our earlier article Understanding Form 16: Part I and Understanding Form 16: Chapter VI-A Deductions we had found the Employee's taxable income after deductions from Gross Salary and…
What is Leave Travel Allowance or LTA
What is Leave Travel Allowance or LTA?
Leave Travel allowance or LTA is an allowance you get from your employer when you are on leave from work and actually travel. A businessman or self-employed person cannot pay himself LTA. At times it is also called as Leave Travel Concession or LTC.
What is advantage of LTA for me?
It saves some tax for you. Let us say your annual Salary is Rs. 8,00,000 and it includes a Rs. 25,000 LTA component. After all your deductions like House Rent, Medical bills, Section 80C Tax Savings etc., your Taxable Income is Rs. 6,25,000. If you claim LTA in that year then your taxable income will come down to 6,00,000. So the LTA component of your salary becomes tax free!
Why does employer give LTA?
LTA is a part of Cost to Company (CTC) is included as a separate component of your pay package for tax planning purposes so that the amount becomes tax free in your hands. (Government organizations are an exception) However, to get tax exemption on LTA, you need to claim the amount only twice in a block of 4 years and that too only after meeting certain conditions as explained later in the article. Our article Salary, Net Salary, Gross Salary, Cost to Company: What is the difference explores CTC in detail.
Is it necessary for company to give LTA?
The company can at their discretion choose to offer LTA as a component in your salary or not. It depends on the way your salary is structured. Attimes company gives option of going for LTA component in your salary (where you need to pay bills etc) or getting a fixed amount instead of LTA but that will be taxable.
Do I need to travel alone for LTA?
In order to claim LTA, you can :
- Travel alone or with your family.
- Family means your spouse, children, parents as well as brothers and sisters who are your dependants. Note for your parents,siblings, you can claim but tax exemption on their travel tickets only if they’re dependent upon you
- Exemption is allowed for up to two children, if the children are born after 1 October 1998. However, if your children were born before October 1998 then, you can claim an exemption for any number of children,even twins, triplets after the first child are accepted.Children can be adult children as well since the law does not specify the age of the children. So if you have an 18-year-old, who is a college student and is not a tax assessee, you can include him as well.
- If your family travels without you, please do not claim an LTA for that journey because the tax law says the employee should proceed on leave to any place in India.
What is covered in Leave Travel Allowance?
The entire cost of the holiday is not covered. Only the travel costs are covered so expenses on hotel rooms, sightseeing, food, etc, cannot be included.
Where can you travel?
To avail the scheme, you have to be on leave and travel to any place in India. Overseas travel is not allowed. You cannot claim LTA for days when you were working or which are general holidays such as Sunday.
Is there any limit to number of leaves one can take?
The Income-tax Act does not specify the minimum number of leaves to avail the LTA exemption. However, your company may have a set number of leaves you need to avail to claim an exemption. So check with your employer.
How can one travel?
- The exemption is available for any journey made by air, road or rail anywhere in India.
- You must take the shortest route to get the LTA benefit.
- If you’ve travelled to multiple destinations, the place that is farthest from your residence will be considered for calculating the exemption amount. For example if you have travelled Bangalore–Mumbai—Hyderabad—Delhi-Bangalore, then as the farthest point from Bangalore is Delhi, so you will be allowed only return fare between Delhi and Bangalore.
How much can you claim for Leave Travel Allowance?
The tax exemption is limited to the fare component, which is economy class air fare of national carrier Air India, first class AC rail fare or first or deluxe class bus fare. However, if there is no public transport, you can hire a taxi or rent a car and claim for expenses equivalent to first class AC rail fare.
- Note if you are travelling by air, it doesn’t mean that you have to compulsory travel by Air India, you can travel by any airline of your own choice, but for the purpose of calculating the maximum fare you can claim, the fare of Air India for the shortest route will be considered.
- Suppose your air journey from Bangalore to Delhi via Mumbai was by Jet Airways Business Class,so in this case you can maximum claim an amount equal to fare of Air India economy class direct flight from Delhi to Bangalore.
- If you have booked a tour via a travel operator as a Package then only the actual amounts spent on Air or Railways or road transport can be claimed. Other expenses cannot be claimed as LTA.
You can get exemption only for the amount you are eligible for and the actual amount spent on travelling. So, if your LTA amount is Rs 15,000 but you’ve spent Rs 20,000, you will get an exemption only for Rs 15,000. Alternately, in case you spent only Rs 10,000, you will get an exemption for Rs 10,000 only. You will have to pay tax on the remaining Rs 5,000.
What is the maximum exemption that you can claim for LTA?
Maximum exemption as per the tax laws are given below. Your employer can reimburse you the entire amount spent by you on travel at times even including boarding and lodging based on your entitlement as per the LTA reimbursement policy of the company, but for tax purposes the excess amount will become taxable. Please remember that You can get exemption only for the amount you are eligible for and the actual amount spent on travelling
- Air : Economy class fare of a Air India, national carrier via the shortest route is allowed.
- Railways : First class Air-conditioned (AC) rail fare via the shortest route is allowed.
- Other modes: Other modes of travel includes, bus and rented vehicles. If a recognized public transport exists on the route you travel, then up to first class deluxe fare is allowed. Else, an amount equivalent to the AC first class rail fare is paid.
When can you travel ?
You can claim exemption for up to two journeys in a block of four calendar years. These time-period of four calendar years are called as blocks and are predetermined i.e they are also notified by the income tax department. The first block began in 1986 to 1989, the next block was 1990 to 1993 and so on.
Note that the applicable year is calendar year and not financial year. In other words, the last block period started on January 1, 2010 and ended on December 31, 2013. The new block started on January 1, 2014 and will end on December 31, 2017. For example, if you travelled during the month of November 2013, it fell in the block of 2010-13. But if you travelled in January 2014 to March 2014, it falls in block (2014-2017) though financial year in both the cases remains the same i.e. 2013-2014.
Note that You need to claim the LTA during the financial year when the travel happened.
What if my travel falls in two blocks?
Say if your travel started in Dec 2013 and ended in Jan 2014, then as the travel started in 2013 you should claim it in 2010-13 block and not 2014-17 block.
Is there some time limit between the travel?
Income tax act says you can claim for two journeys in a block of four years. So you even can claim for two journeys in the same year, provided you make no more LTA exemption claims for the rest of the block. You cannot claim LTA every year.
What if both husband and wife are eligible for LTA?
If both spouses are eligible for LTA: Both the spouses can claim LTA individual but both can’t claim LTA for the same journey. They can claim exemption for separate journey or divide the expense for example the husband can book the air tickets for one way and the wife can do so for the return journey.
What is the Carry Over Concession?
If you are not able to avail 2 journeys in a block of 4 years, you’re allowed to carry forward it to the next block but subject to following conditions:
- Only one journey is allowed for carry over concession.
- It has to be availed within the first calendar year of the next block.
Suppose that in the previous block of 2010-13, you undertook only one journey. Now, you’ll be allowed to carry one journey forward to next block of 2014-17, without affecting your entitlement of 2 journeys’s during the current block , but you would have to avail the carry forward journey within the calendar year 2014 i,e you’ll be entitled for 3 journeys in the block of 2014-2017; however, out of the 3, you’ll have to undertake at least one journey within 2014. Otherwise, the carry over will lapse and you would be left with only 2 entitlements instead of 3.
What happens if you don’t travel at all?
If you do not travel, you will still get the LTA amount, but you will have to pay tax on the same based on your tax bracket.
How to make a claim?
Give a written declaration to your employer with travel details and the amount spent. As per the Supreme Court, if you submit a declaration stating the amount you spent, you don’t need to give the actual bills. But it is recommended you keep the tickets handy in case your employer or the tax authorities such as Assessing Officer need to see it later or to satisfy themselves about the genuineness of the claim.
Your employer will certify the LTA exemption in Form 16.
Under which Income Tax Act section LTA exemption comes?
The exemption comes under Section 10(5) of the Income Tax Act.
Related articles :
Articles related to salary such as CTC, ESOPs, EPF are organised at our webpage Job,Salary some sample articles are as follows
- Salary, Net Salary, Gross Salary, Cost to Company: What is the difference
- Understanding Form 16: Part I
- Understanding Variable Pay
- Understanding Form 12BA
- What are Employee Stock Options (ESOP)
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We go on travel with our families ,if we can get tax benefits, why waste it. Hence the article on Leave Travel allowance or LTA. Have you claimed LTA? Is some information wrong or needs explanation please let us know.