What is the meaning of Leave Travel Allowance?
Leave Travel Allowance (LTA) is a type of allowance which is given to an employee
from his employer to cover his travel expenses when he is on leave from work. Sometimes it is
also known as Leave Travel Concession (LTC). LTA is exempt from tax u/s 10(5) of Income Tax Act, 1961.
LTA can be broadly categorized into two parts:
1) Any travel concession or assistance received by employee from his employer for himself and his family to cover expenses incurred in travelling while on leave.
2) Any travel concession or assistance received by employee from his former employer for himself or his family to cover expenses incurred in travelling post retirement or termination of service.
Note: For the purpose of this section, family includes:
a) Spouse of individual
b) Children of individual
c) Parents of individual (mainly or wholly dependent on the individual)
d) Brothers and sisters of individual (mainly or wholly dependent on the individual)
LTA or LTC Exemption Rules
To check your eligibility and calculate your LTC accurately, you must know the following Leave Travel Concession rules:
- People incur several kinds of expenses during their holiday trip but not all of them are covered by LTA. Expenses made on food, shopping, etc. are not tax deductible.
- Only the expenses made by employee on travelling are born by the employer for which he provides Leave Travel Allowance to the employee.
- The individual has to keep proof of travel as it can be required for tax auditing purposes.
- Exemption is allowed for only two travels within a block of four years.
- Depending on the mode of transportation chosen and connectivity of the place, amount of exemption is decided.
What are LTC block years?
LTC or LTA block years are blocks of 4 years created by Income Tax Department where exemptions
can be claimed twice during each block period.
Here is the list of all block years:-
Current LTC Block Year
The current or on-going block year is the 8th block year. The 4 years in this block are the years 2014, 2015, 2016 and 2017.
List of Expenses Exempt under LTA
1) In case of travel by Air
Then economy air fare of national carrier by the shortest route or the actual amount spent on travel whichever is less is exempt from tax.
2) In case of travel by Rail
Then A.C. first class rail fare by shortest route or actual amount spent on travel whichever is less is exempt from tax.
3) If the origin and destination spots of journey are connected by rail but journey is performed by other mode of transport and not air or rail
Then A.C. first class rail fare by shortest route or actual amount spent on travel, whichever is less is exempt from tax.
4) If the origin & destination points are not connected by rail or air (partly/fully) but connected by other recognized Public transport system
Then first class or deluxe class fare of such transport by shortest route or actual amount spent on travel, whichever is less is exempt from tax.
5) If the place of origin & destination are not connected by rail or air (partly/fully) and also not connected by other recognized Public transport system
Then AC first class rail fare by shortest route (assuming that the journey was performed by rail) or the amount actually spent on travel, whichever is less is exempt from tax.
If the assessee did not use LTA provided by his employer either once or twice (the permitted limit) in a 4 years block
period then he can still claim LTA exemption by using LTA in the year immediately succeeding the 4 years block period.
It is known as carry over concession.
Let’s understand this with the help of an example:
Suppose Mr. Amit claimed only one exemption during the 7th block which
lasted from 2010-13. He still has one exemption remaining. So when can he claim it?
He can claim this concession in the next year, i.e. 2014 which is a part of 8th block period.
So, in the 8th block period (2014-17), he can claim 3 exemptions in total but he needs to claim the
carry over concession of previous block in 2014 only and not later than that.
Limitations or Restrictions Applicable under LTA
- Leave Travel Allowance covers only domestic travel, i.e. only within India. International travel is not covered under this.
- To claim LTA, the mode of travel should be either air, railway or public transport.
- LTA is provided for only travel expenses.
- Tax exemption on LTA cannot be claimed for more than 2 children on an individual.
This restriction is not applicable if children are born before October 1st 1998.
- Children born out of multiple birth after the first child will be treated as one child only.
So the above mentioned restriction will not be applicable in this case also.
Example of LTA Calculation
Suppose Mr. Ajay, an employee of XYZ Pvt. Ltd. travelled from Pune to Bangalore and back through business
class flight. His total expense on air tickets was Rs. 40,000. The economy class air fare of return journey
is Rs. 12,000. His employer reimbursed Rs. 40,000 to him. How much of his LTA be exempt from tax?
Solution: The air fare of economy class is lower than the actual amount of money spent on tickets. Therefore,
only Rs. 12,000 will be exempt from tax and remaining Rs. 28,000 will be added to his taxable income.