Leave travel allowance (LTA) is a common form of tax exemption given to the employees by most employers. LTA is exempt from tax u/s 10(5) of Income Tax Act, 1961. While it may appear a fairly straightforward concept, it often brings about a lot of questions among those claiming exemption on it.
Employees who are eligible for Leave Travel Allowance as part of their CTC can claim reimbursement for expenses incurred on travel. This reimbursement is not included in taxable income subject to certain limits and conditions. Leave Travel Allowance tax break can be claimed by them for their own travelling as well as family members for journeys undertaken only within India.
Many companies provide leave travel allowance against travel to reduce tax burden of their employees. The condition is that you have to produce bills for the same. Every employee has an LTA limit according to his salary. For example an assistant manager may have a limit of Rs.10,000 per year, then he or she can submit bills only worth Rs.10,000 annually. The company will then reimburse the entire amount.
After claiming this reimbursement, employees need to then claim a tax exemption, where that amount is not considered as part of taxable income. This is called LTA tax exemption. In the absence of actual bills, employees can still claim reimbursement but the company will deduct tax (highest tax bracket) and give them the remaining amount as part of their salary income.
Conditions for claiming LTA:
Need to be on leave:
The tax exemption only applies when you are on leave and not an official trip. You need to make sure that the days for which you’re claiming LTA are strictly when you are on leave. LTA can be claimed when you travel alone. It can also be claimed when you’re travelling with your family (spouse; only 2 children; parents, brothers & sisters wholly or primarily dependent on you) but can’t be claimed with respect to your family, spouse or child when you are not travelling with them.
Frequency of claiming exemption:
You can claim the LTA exemption twice in the block of four calendar years. This block is not calculated with reference to commencement of your employment but is predefined by the law. The current block has is from 1st of January 2014 and will end on 31st December 2017. The next block will begin from 1st of January 2018 and end after 4 years.
Here comes the next tricky part. If you’re unable to utilize your LTA exemption during one block, then one or two journeys travelled can be carried forward to the next block of 4 years. Although the exemption on this travel can only be availed during the 1st year of the next block of 4 years provided all the records are retained.
Mode of travel:
- The LTA amount eligible for tax break here is the lower of the air-conditioned first class fare by the shortest route or the actual amount spent. The same rule applies to the journey undertaken by any other mode, such as a private taxi, and the place of origin and destination
- The LTA amount for which tax break can be claimed in case of air travel is the lower of the economy class fare of the national carrier by the shortest route or the actual amount spent, whichever is less.
- For recognised public transport, exemption will be lower of first class or deluxe class fare by the shortest route or the actual amount spent
- For unrecognised public transport exemption will be lower of the air-conditioned first class rail fare by the shortest route (if the journey has been undertaken by rail) or the actual amount spent.