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Apart from income tax premiums, housing loan interests, etc. the Income Tax Act, 1961 provides salaried employees tax exemptions on other variables as well. These exemptions allow employers to structure employee CTC in an efficient manner that is beneficial to both parties and is tax efficient. A leave travel allowance or LTA Is one such exemption. However, do keep in mind that if this exemption can only be availed if you stick to the old tax regime.
What is Leave Travel Allowance (LTA)?
A leave travel allowance is an exemption for compensation or assistance provided by an employer to an employee while he/she travels on leave. This allowance acts as a tax exemption to the salaried employee.
There are a few factors that will be taken into consideration before an employees’ LTA claim can be taken into account.
Under what conditions can an employee claim leave travel allowance?
- An employee must show proof of actual travel or journey.
- International travel will not be considered as LTA. An employee can claim leave travel allowance for domestic travel or travel within the country (India).
- The exemption is available for the employee who travels alone or with the family. (Family includes employees’ children, spouse and other dependent members like parents, brothers & sisters).
- The exemption is not applicable for more than two children born after October 1st, 1998.
Example of an LTA:
Mr X is provided LTA of INR 15,000 by his employer, but X spends only INR 5,000 on travel, then his exemption is limited to only INR 5,000 since the exemption is only valid for travel expenses and not other costs such as accommodation and food.
LTA eligibility for exemption
The following are a list of expenses that are eligible to be exempted under LTA or leave travel allowance:
- Air Travel: Amount spent or economic airfare (National Carrier only, Indian Airlines or Air India) by the shortest route to the destination.
- Journey by Railway: Restricted to A.C first-class fare on the shortest route or amount spent on travel, whichever is lesser.
- The journey undertaken via other modes of transport if the place of origin and destination are not connected by rail.
- The journey undertaken via recognised public transport if the place of origin and destination are neither, completely or partly, connected by rail.
- The journey undertaken if the place of origin and destination are neither, completely or partly, connected by rail nor connected by any recognised public transport
Tax Rebate on LTA
In case of any instances where the employee for the same year could not claim a leave travel allowance, he or she can move it to the next year. However, the claim cannot be part of the Income Tax Return filing. The LTA claim will have to be certified by the employer and added to form 16.
Can an employee claim LTA on every vacation?
The leave travel allowance is applicable only for two journeys on a block of four calendar years.
A block year is a period decided by the Government of India for leave travel allowance exemption purposes. The LTA block for the current period is 2018-21; the previous period was 2014-17.
What is the procedure to claim leave travel allowance?
The employer needs to announce a due date for the allowance to be claimed. Once the date has been announced, the employee may be required to produce original receipts or bills for proof of travel, such as tickets, boarding pass or invoice from the travel agent.
Although proof of travel is not mandatory (depends on the employer), it is always advisable to keep an account of the bills depending on the LTA policy of the organization.
Benefits of claiming leave travel allowance
As the name suggests, the allowance provides individuals with an exemption on taxable income. LTA is added to an employees’ salary component based on factors like pay scale, position, title, etc. The employee avails the benefits of the leave travel allowance and only if it is part of the salary structure.