Leave Travel Allowance and How to Gain Its Benefits?

Are you planning a holiday this summer and wondering if you can claim it under your firm’s LTA? While most of us have a ‘leave travel allowance’ component in our salaries, we don’t always benefit from it. While some find it difficult to understand, others remember it only after all the plans are made.

Let’s try to understand the key aspects of LTA. Leave travel allowance is an allowance that the employer pays to the employee when the latter is travelling with their family or alone. The amount paid as Leave Travel Allowance is tax free.

The terms of LTA are defined in section 10(5), Rule 2B of the Income Tax Act 1961. This details the conditions for tax exemption. In case you don’t want to load up your mind with legal details, read on, to know more.

Key Points About Leave Travel Concession Exemption

The amount given to you by your employer is exempted from tax. But remember that the exemption is restricted only to travel. You cannot claim exemption on other expenses like food, shopping, hotel stays, etc, incurred during the travel. As per regulations income tax exemption on leave travel allowance is available only for two children of the individual born after October 01, 1998. A family, under LTA, includes immediate family: spouse and children, as well as parents and siblings dependent on the individual. Exemption is allowed for only two travels within a block of four years. If you do not use the exemption within a block, it can be carried over to the next block. The current block is 2014-2017.

Leave Travel Allowance Exemption and Income Tax Benefit

To claim income tax benefit and make the most of your LTA allowance, here are a few key LTA rules.

Travel by Air– Economy air fare by the shortest route or amount spent will be exempted depending on whichever is lesser.

Travel by Rail– A.C. first class fare by the shortest route or the amount spent on travel will be exempted depending on whichever is lesser.

Partial or no Rail Connectivity: Place of origin and destination not connected by rail (partly/fully) but connected by other recognised public transport system will be exempted.

Please keep in mind the following travel limitations applicable under LTA rules.

First, leave travel allowance can be claimed only on domestic travel and does not cover international travel. Second, the mode of travel should be either air travel, railway or public mode of transport.

When should I claim LTA?

You can claim the LTA benefits before your employer calculates your tax liability for the year. Try and submit your LTA claims early as it may not be possible for your employer to adjust the excess tax deducted at a later date.

How is LTA calculated? What is the maximum limit?

According to the provisions of the income tax act no monetary limits either as percentage or absolute amount exist, in respect to LTA. Thus, the employer can freely decide what component of salary he wants to allow his employee to claim as LTA. However, prudence demands that the amount of LTA should be reasonable in relation to the overall salary of the employee.

What happens if an employee does not claim LTA?

If an employee does not avail the LTA during the block period, and is not eager to carry it forward, the employer pays the amount after cutting the taxes. This is because LTA is part of the salary. In case the employee does not avail this facility, the same needs to be paid to the employee after deducting tax on it.

Is any portion of the LTA taxed?

The portion of LTA that is unspent is added to the taxable salary and tax is deducted on the total of salary including the unspent LTA. Effectively the unspent LTA shall get taxed at your highest tax slab.

Can both husband and wife claim LTA simultaneously, if both are employed?

Yes, both husband and wife can claim LTA but not for the same expenditure incurred. Thus, working couples can claim LTA for four journeys undertaken during the block period of four years.

Some employers seek proof of travel for audit purposes. Though it is not mandatory to keep proof, it is safe to retain boarding passes, flight tickets, invoice of travel agent, duty pass and other documentary proof in case the assessing officer or the employer demands it. Read more about LTA here.

To sum up, remember, LTA is available for expenses incurred on inland travel only and it can be claimed twice in block of four calendar years. You can travel alone or with family but you can claim LTA for only two children.