What is Leave Travel Allowance (LTA)?
As a taxpayer, mastering tax exemptions and deductions is vital for reducing liability. It is your responsibility to claim entitled deductions responsibly. The Income Tax Act of 1961 offers various exemptions, such as LIC premiums and housing loans. Lesser-known exemptions also exist, often overlooked by taxpayers.
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Deductions lower taxable income, but exemptions exclude specific income from taxation. Employers structure cost-to-company (CTC) packages, incorporating these benefits. Leave Travel Allowance (LTA), a tax exemption for salaried individuals, remains less explored. Many employers offer LTA and LTC, applicable for any two years within a 4-year block. While LTA aligns with the existing tax regime, it's unavailable if you opt for the new regime at the start of the fiscal year.
This article will discuss everything you need to know about LTA and its effect on taxation for different categories of employees. Explore our comprehensive LTA claim process guide to seamlessly navigate tax exemptions and deductions.
What is Leave Travel Allowance?
Leave Travel Allowance (LTA) is a benefit offered by many employers in India to help cover the cost of travel expenses incurred by employees during their leave periods. It's essentially a tax-exempt allowance provided to encourage domestic tourism and leisure travel.
Understanding Leave Travel Allowance (LTA)
Indian employers offer LTA to their salaried employees as an allowance for traveling to any destination within India. This travel is permissible even after the retirement or termination of the employee from the service. Claiming LTA may sound simple, but understanding the intricacies will ensure accuracy in tax claims. You need to understand the LTA claim rules to avoid unnecessarily paying taxes.
Individual taxpayers can claim LTA for the travel costs for themselves and their families (including spouses, dependent children, dependent siblings, and parents). The LTA tax exemption, as outlined by Section 10(S) of the Income Tax Act 1961, is explained below:
LTA Eligibility
Only salaried professionals are entitled to LTA benefits. You can get LTA tax exemptions if your employer includes LTA in your pay. Even if you qualify, you can only claim LTA when you travel. You cannot claim the tax exemption for the LTA amount if you have not traveled anywhere within India on your leave days.
LTA Claim Rules
While a leave travel allowance can help reduce tax liability, it is not unconditional. Understanding the LTA tax exemption limit is crucial so you do not get carried away while filing your taxes. In this section, let's dig deep into the conditions and requirements for claiming LTA.
You must travel to claim the exemption and provide proof of journey
Domestic travel, which is travel within India, can only be claimed for LTA tax exemption
No international travel can be claimed under any circumstance
LTA is applicable for the salaried employee who travels alone or with his family. The employee's family includes their spouse, children, dependent parents, and siblings.
LTA tax exemption is not applicable for more than 2 children born after 1st October 1988. If children are born before 1st October 1988, exemptions can be claimed for as many children as you have. This restriction, however, doesn't apply to multiple births for the second pregnancy.
LTA Travel Exemption Limit
The employer grants a portion of the employee's package as LTA. While this amount can be anything, you can claim LTA exemptions only when you actually travel. Even when you are allowed to make a claim, you can only claim LTA for two travel instances in a block of four calendar years.
Currently, the LTA block is between 2022 and 2025. If you have traveled from 2022 until now, you can claim only twice for travel between 2022 and 2025. Also, the claim can be made only for actual travel costs. This does not include the money spent on accommodation, food, conveyance, and other expenses. The employer sets the maximum exemption limit.
For example, if your employer grants LTA for Rs. 25,000 and you have spent Rs. 20,000 on travel costs, you can claim exemption only for Rs. 20,000 and not for the total LTA grant of Rs. 25,000. The remaining Rs. 5,000 will be considered taxable income. Similarly, if you have not traveled, you cannot claim the exemption even though your employee offers LTA—the entire Rs. 25,000 will be considered taxable income.
LTA for Multiple Journeys
Regardless of the number of travels, vacations, or journeys you make during the financial year, you can only make LTA claims for two travel instances in a four-year calendar block year. The block year is defined by the government exclusively for LTA exemption. The first block was announced in 1986-1989. The block year available now is for the period from 2022 to 2025. You can wait until 2025 file your to claim.
If two spouses work, they can claim LTA separately in their tax returns for the calendar year. This can also be claimed for the same or other travel instances.
You can only claim for one travel instance per calendar year. If you have traveled multiple times in a single financial year and have not traveled anywhere for the next three years in the calendar block, you can only make one claim per year.
LTA for Multiple Destinations Within a Journey
Suppose your journey involves multiple destinations during a single vacation. Does this mean you can claim LTA for every airplane, train, or bus travel? No, that is not the case.
When your vacation involves multiple destinations within India, your journey is considered to be traveling from your place of origin to the place of destination, which is the farthest place from your origin. However, a leave travel allowance is available only for the travel cost by the shortest possible route.
Even though you may have multiple travel tickets for the same journey, the fare is computed based on the shortest route from the origin to the destination. The lowest expense can only be claimed for LTA tax exemption.
LTA Exemption for Holidays
The employer can determine the LTA exemption policy. Some employers allow you to claim LTA tax exemption for any vacation, even on weekends or holidays. However, most employers strictly adhere to the exact wording of the income provision. Employees can claim LTA only if they have applied for leave and traveled to destinations within India during those leave days. Travels taken on official holidays or weekends are not permissible for LTA by the employers.
LTA for Retired and Terminated Employees
If your employer has provided an LTA grant and you are retired or terminated from service within the calendar block, you are still eligible to claim LTA. However, some rules govern this case.
Retired employees can claim travel made during their employment years in the calendar block. Similarly, terminated employees can claim for travel they made during the time they were employed before termination.
LTA for Contract Employees
LTA benefits are available only for salaried individuals. If you are a freelancer or an employee working based on a contract, you cannot claim LTA.
LTA for Official Travel
Sometimes, you may have to travel officially to certain destinations. Your employer may fund these trips, or you might have to pay out of pocket. Either way, you cannot claim LTA benefits if you travel for work. LTA tax exemption is applicable only for personal travel for vacations. Certain types of work travel may also have tax deductions, but that depends on your employer.
LTA for Travel Expenses
While you can claim LTA benefits, it doesn't include the overall travel costs. Leave travel allowance is available only for actual travel, i.e., only the travel from the origin to the destination. You can take an airplane, train, or bus for your travel and claim LTA. However, other travel expenses, such as accommodation, food, conveyance, sightseeing, etc., should come out of your pocket.
Unclaimed LTA Carry-over
If you haven't claimed LTA in the previous 4-year block for one or two journeys, you may carry over the LTA tax exemption to the next block. However, only one additional journey can be claimed, specifically in the next block's first calendar year.
For instance, if the prior block was 2018-2021, and no claim was made, or only one claim was made during that period, the unclaimed LTA can be carried over to the 2022-2025 block. It's important to note that this additional claim is applicable only for travel undertaken in 2022 and not any other year. Also, only one additional claim can be carried over, irrespective of not claiming any LTA in the previous calendar block.
LTA for Foreign Travel
The purpose of LTA is to encourage employees to indulge in the history and culture of India. Foreign travel defeats this purpose; thus, you are not allowed to claim LTA for foreign travel. A division bench of the Supreme Court again confirmed this in November 2022. LTA benefits are applicable only for travel within India. At any point in time, if the journey includes a foreign destination, you cannot claim LTA for it.
How to Claim LTA
The employer usually determines the LTA claim process. Your employer will notify you of the due date for claiming LTA. The mandatory declaration is also vital for LTA claims. Although employers don't need to collect proof of travel, keeping copies of travel records is crucial when you claim leave travel allowance.
Before claiming LTA, assess your eligibility. You qualify if you're a salaried individual with LTA in your salary package. Any LTA grant left over after the travel expenses claimed as tax exemptions will be counted as taxable income. Simplified steps for the LTA claim process are:
Plan your travel – Choose your destination, number of passengers, and mode of transport. Decide how you want to spend your vacation and book your tickets accordingly. Plan your itinerary at your convenience.
Inform your employer – Apply for leave to take a vacation with your family and inform your employer about it.
Keep travel documents safe – Keep your tickets, boarding passes, and invoices safe.
Fill and submit the form – When your employer announces the due date for LTA claims, fill out the appropriate forms and submit the travel proof.
Conclusion
The leave travel allowance benefits are offered to salaried individuals to reduce their tax burden. You can avail of these tax benefits if you actually travel to any destination within India. Your vacation may cover multiple destinations in India, but you can file LTA claims only for two travel instances per calendar block. Staying updated with the latest news and updates is vital to avoid tax penalties. Check out TaxBuddy blogs to know more about the factors affecting your taxation and how you can save more money in your next taxation cycle.
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FAQs
Q1. Who is eligible for Leave Travel Allowance (LTA)?
Employees who are on a company payroll are eligible for LTA. However, your company may have specific qualification criteria to become eligible for LTA.
Q2. Can I claim LTA for all expenses incurred during my travel?
No, LTA is applicable only for transportation expenses - air, rail, or road. You cannot claim LTA for accommodation, sightseeing, or food expenses.
Q3. Can I claim LTA for international travel?
No, LTA can be claimed only for domestic travel within India. The purpose of LTA is to encourage domestic tourism and compensate employees for contributing to the tourism sector within the country.
Q4. How often can I claim LTA?
LTA can be claimed a maximum of 2 times in a 4-year block. Even if you have made multiple travels during the 4-year block, you can only claim LTA for two of those travels. You can however choose the longest travel route and claim LTA for the expense.
Q5. What are the tax implications for leave travel allowance?
When you have spent the leave travel allowance for traveling within India, you can claim only the actual expenses upto a certain limi t. The LTA claimed is exempt from tax. However, if your company offers LTA, but you have not traveled during the financial year, the income is taxable as per the income tax slab.
