What is Leave Travel Allowance?
Leave Travel Allowance (LTA) is one of important component of Salary package, Its an allowance granted by employers to meet the employee's (and their dependents) travel expenses during the year. Employee can take tax exemption on LTA through section 10(5) of Income Tax Act. The main purpose of LTA is to promote Indian tourism industry.
Its not simple as explained above. Following things which will affect tax exemption on LTA:
Who can be covered in LTA: The amount spent on travel should be for self, spouse, children (maximum of two children - if children born after 01 October 1998), parent, brother, sister (any other person who is dependent upon employee).
Travel Area: The LTA exemption is permitted only for travel within India by any mode of transportation i.e. rail, air, road through shortest route. LTA can be claimed only for source to destination place (city) through shortest route. Any amount other than travel like lodging, boarding, food, cab fare, auto fare, driver tip/allowance is not considered for income tax exemption.
Leave Criteria: As per India's Leave Travel Allowance rules, there is no limit on the minimum or the maximum number of days of travel to claim LTA. However in order to make sure that LTA exemption claim is hassle free it is advisable that a minimum of three days of leave from work be taken (this does not include sick leave or holidays or weekends).
Tax Exemption Limit: Tax exemption should not be more than LTA provided by employer. For various mode transportation please see below:
If travel by air, Economy air fare by shortest route or amount spent which ever is less can be considered for tax exemption.
Its not simple as explained above. Following things which will affect tax exemption on LTA:
Who can be covered in LTA: The amount spent on travel should be for self, spouse, children (maximum of two children - if children born after 01 October 1998), parent, brother, sister (any other person who is dependent upon employee).
Travel Area: The LTA exemption is permitted only for travel within India by any mode of transportation i.e. rail, air, road through shortest route. LTA can be claimed only for source to destination place (city) through shortest route. Any amount other than travel like lodging, boarding, food, cab fare, auto fare, driver tip/allowance is not considered for income tax exemption.
Leave Criteria: As per India's Leave Travel Allowance rules, there is no limit on the minimum or the maximum number of days of travel to claim LTA. However in order to make sure that LTA exemption claim is hassle free it is advisable that a minimum of three days of leave from work be taken (this does not include sick leave or holidays or weekends).
Tax Exemption Limit: Tax exemption should not be more than LTA provided by employer. For various mode transportation please see below:
If travel by air, Economy air fare by shortest route or amount spent which ever is less can be considered for tax exemption.
If travel by rail, air conditioned first (AC I) Class rail fare by shortest route or amount spent which ever is less can be considered for tax exemption.
If travel by road (source and destination are connected or not through rail), air conditioned first (AC I) Class rail fare by shortest route or amount spent which ever is less can be considered for tax exemption.
Proof: Proof of travel needs to be presented to claim LTA exemption. The tickets (rail / bus) are considered valid proof if journey through rail or any public transportation.
If journey performed through a hired or rental car, the receipt from the travel agency or car rental agency is considered as valid proof. Also toll receipts are considered in tax exemption.
If journey performed through air, boarding pass and ticket are considered as valid proof.
The supreme court said in hearing one of case (between L&T and Income Tax department of India): “The beneficiary of exemption under Section 10(5) (of the Income Tax Act) is an individual employee. There is no circular of Central Board of Direct Taxes (CBDT) requiring the employer under Section 192 to collect and examine the supporting evidence to the declaration to be submitted by an employee(s).”
Refer court appeal.
Claim Period: LTA tax exemption can be claimed twice in block of 4 years. You can not claim LTA twice in the same year. These block of 4 years are predefined by government as below:
01-Jan-2002 – 31-Dec-2005
01-Jan-2006 – 31-Dec-2009
01-Jan-2010 – 31-Dec-2013
and so on
There is an option to carry forward only one LTA claim in next block of four years, but the condition is that claim should be in first year of next block otherwise it will be lapse.
But instead of going from Mumbai to Bangalore, they go from Mumbai to Hyderabad, and then got to Bangalore.
Person X travel by train in the AC 3 tier category.
The cost of AC 3 tier train tickets are as follows:
Mumbai – Hyderabad: Rs. 800
Hyderabad – Bangalore: Rs. 700
Bangalore – Hyderabad: Rs. 700
Hyderabad – Mumbai: Rs. 800
Thus, Person X spend a total of Rs. 6,000 for two people.
Now, the shortest route to your destination in this case would be Mumbai to Bangalore. The AC First class ticket costs Rs. 2,350 for this.
So, round trip fare would have been Rs. 9,400 for two people.
The amount exempt from income tax is the lesser of these two. Thus, in this example, even when Person X haven’t traveled through the shortest route, he / she can claim income tax exemption for the full amount of Rs. 6,000.
And what about the actual allowance that Person X get as part of salary?
Let’s say Person X get a leave travel allowance of Rs. 10,000.
Would it be fully exempt?
No. As the amount exempt is the lesser of the amount actually spent and the fare by the defined class through the shortest distance. Thus, the amount exempt from income tax would be Rs. 6,000. The remaining Rs. 4,000 would be taxable, and would be included in income.
If Person X gets a leave travel allowance of Rs. 5,000 then only 5,000 can be exempted from Income Tax.
If travel by road (source and destination are connected or not through rail), air conditioned first (AC I) Class rail fare by shortest route or amount spent which ever is less can be considered for tax exemption.
Proof: Proof of travel needs to be presented to claim LTA exemption. The tickets (rail / bus) are considered valid proof if journey through rail or any public transportation.
If journey performed through a hired or rental car, the receipt from the travel agency or car rental agency is considered as valid proof. Also toll receipts are considered in tax exemption.
If journey performed through air, boarding pass and ticket are considered as valid proof.
The supreme court said in hearing one of case (between L&T and Income Tax department of India): “The beneficiary of exemption under Section 10(5) (of the Income Tax Act) is an individual employee. There is no circular of Central Board of Direct Taxes (CBDT) requiring the employer under Section 192 to collect and examine the supporting evidence to the declaration to be submitted by an employee(s).”
Refer court appeal.
Claim Period: LTA tax exemption can be claimed twice in block of 4 years. You can not claim LTA twice in the same year. These block of 4 years are predefined by government as below:
01-Jan-2002 – 31-Dec-2005
01-Jan-2006 – 31-Dec-2009
01-Jan-2010 – 31-Dec-2013
and so on
There is an option to carry forward only one LTA claim in next block of four years, but the condition is that claim should be in first year of next block otherwise it will be lapse.
Examples of Tax Exemption on LTA:
Let’s say Person X and his / her spouse are traveling to Bangalore from Mumbai.But instead of going from Mumbai to Bangalore, they go from Mumbai to Hyderabad, and then got to Bangalore.
Person X travel by train in the AC 3 tier category.
The cost of AC 3 tier train tickets are as follows:
Mumbai – Hyderabad: Rs. 800
Hyderabad – Bangalore: Rs. 700
Bangalore – Hyderabad: Rs. 700
Hyderabad – Mumbai: Rs. 800
Thus, Person X spend a total of Rs. 6,000 for two people.
Now, the shortest route to your destination in this case would be Mumbai to Bangalore. The AC First class ticket costs Rs. 2,350 for this.
So, round trip fare would have been Rs. 9,400 for two people.
The amount exempt from income tax is the lesser of these two. Thus, in this example, even when Person X haven’t traveled through the shortest route, he / she can claim income tax exemption for the full amount of Rs. 6,000.
And what about the actual allowance that Person X get as part of salary?
Let’s say Person X get a leave travel allowance of Rs. 10,000.
Would it be fully exempt?
No. As the amount exempt is the lesser of the amount actually spent and the fare by the defined class through the shortest distance. Thus, the amount exempt from income tax would be Rs. 6,000. The remaining Rs. 4,000 would be taxable, and would be included in income.
If Person X gets a leave travel allowance of Rs. 5,000 then only 5,000 can be exempted from Income Tax.
FAQ on LTA:
When Husband and Wife both receive LTA
In such a case, both of them could claim LTA individually as the rules of LTA apply individually to each of them. So in a block of four years, each spouse can claim LTA twice. The only restriction is that both spouses cannot claim an LTA exemption for the same journey. In other words, LTA cannot be claimed twice for the same journey.
