Introduction
The Income Tax Act, 1961 Leave Travel Allowance (LTA) is a component of an employee’s salary package, which is given to an employee to cover travel expenses when they take leave from work to travel within India. In this context, let’s discuss the LTA, rules, claiming, eligibility, tax exemption, and the latest updates related to LTA in India.
What is Leave Travel Allowance (LTA)?
Leave Travel Allowance (LTA) is a type of allowance provided by employers in India to their employees for the purpose of travel. LTA is a tax-free allowance under certain conditions.
The purpose of LTA is to provide employees with the means to take a break from work and travel to a destination of their choice with their family. The LTA can be used to cover expenses incurred on travel, accommodation, and meals during the trip.
The LTA can be claimed only for travel within India and it is available for only two journeys undertaken in a block of four calendar years. The journey can be undertaken by the employee alone or with their family members, including spouse, children, and dependent parents, among others.
The LTA amount is calculated based on the employee’s basic salary and can vary from company to company. The LTA is usually paid as a reimbursement of expenses incurred by the employee on travel and related expenses. To claim LTA, employees need to submit proof of travel and related expenses to their employer.
Rules:
- LTA is a tax-free allowance that is given to an employee twice in a block of four calendar years.
- The current block for claiming LTA started from January 2018 and will end in December 2021.
- The employee must undertake travel to claim LTA. The travel can be taken by the employee alone or with their family members.
- The travel can be in any mode of transportation – air, rail, or road – but the employee must have proof of the expenditure incurred.
- The amount that an employee can claim as LTA is limited to the actual amount spent on travel or the amount specified by the employer, whichever is lower.
Claiming:
- To claim LTA, an employee needs to submit proof of travel expenses incurred. This can include travel tickets, boarding passes, hotel bills, and other relevant documents.
- Actual journey is a must to claim the exemption
- Only domestic travel is considered for exemption i.e., travel within India. No international travel is covered under LTA
- The exemption for travel is available for the employee alone or with his family, where ‘family’ includes the employee’s spouse, children and wholly or mainly dependent parents, brothers, and sisters of the employee.
- The employer may require the employee to submit a declaration stating that the expenses claimed are genuine and have been incurred on travel.
Eligibility:
- All salaried employees who receive LTA as a component of their salary package are eligible to claim LTA.
- The employee must have taken leave from work to undertake the travel.
- The travel must be within India, and the employee must have proof of the expenditure incurred.
- The exemption is available only on the actual travel costs i.e., the air, rail or bus fare incurred by the employee.
For example, if LTA granted by employer is Rs 100,000 and actual eligible travel cost incurred by employee is Rs 40,000, exemption is available only to the extent of Rs 40,000 and balance Rs 60,000 would be included in taxable salary income.
Tax Exemption:
- The amount claimed as LTA is exempt from tax, subject to certain conditions.
- The exemption is available only for the travel expenses incurred by the employee and does not cover other expenses such as hotel accommodation, sightseeing, food, local conveyance, etc.,
- The exemption is available only for two journeys in a block of four calendar years.
- The exemption is available only if the employee submits proof of travel expenses incurred.
Conclusion:
LTA is an important component of an employee’s salary package, and it is important to understand the rules, claiming process, eligibility, tax exemption, and latest updates related to LTA.
Frequently Asked Questions
The LTA component of your pay package or CTC determines how much is free from LTA. You may submit documentation of your trip throughout the block period and submit claims up to the maximum allowed by your CTC.
Leave Travel Allowance covers only the travel expense incurred during the travel.
It covers the travel expenses incurred by the individual and their immediate family. Relatives are not considered family under Leave Travel Allowance.
The Income Tax Act doesn’t mandate the employer to collect proof of expenses claimed for LTA tax breaks, it is advisable to keep such bills safe to justify the expenses in case the tax authorities demand it. Therefore, it is not necessary to submit such bills of expenses to the employer, but the tax authority can demand it by issuing a notice.
One can make a claim only twice in a block of four years.
No, international travel is not covered.
LTA can be carried forward to the next block if it is not utilized for the current block.
Exemption is not available for more than two children of an employee born after 1 October 1998. Children born before 1 October 1998 do not have any restriction. Further, in cases of multiples births on second occasion after having one child is also not affected by this restriction.
Although the Income Tax Act does not require the employer to get confirmation of the costs claimed for LTA tax reductions, it is nonetheless prudent to have such receipts on hand in case the tax authorities request them. Therefore, it is not essential to provide the employer with such invoices of expenses, but the tax authority may do so by sending out a notification.
If an employee travels to various locations, only expenditures that are permissible under LTA and that were incurred along the shortest route between the employee’s starting point and the farthest point of the journey may be claimed.
The LTA is credited to your account on a regular basis as part of your income because it is a part of your compensation structure itself. However, you cannot use the LTA you received for tax exemption purposes if you don’t travel at all or if you don’t have sufficient proof of travel. The LTA you received in this situation will be added to your net taxable income.
You may only use the LTA exemption once per calendar year.
The LTA tax exemption claim can be made for domestic travel of self or family members. The family includes your spouse and children, and dependent parents and siblings. LTA tax break is not available for more than 2 children if born after October 1, 1998. This restriction does not apply to children born before this date.
If an employee makes a journey to multiple destinations while travelling, then tax break under LTA can be claimed only admissible expenses incurred on the shortest route available from the place of origin and farthest point of the journey.
Since the LTA is a component of your salary structure itself, it gets credited to your account as part of your salary on a regular basis. However, if you don’t travel at all or don’t have valid proof of travel, then you can not claim the LTA received for tax exemption purpose. In such a case, the received LTA will be added to your net taxable income.
