What is Leave Travel Allowance?
Leave Travel Allowance, also knows as LTA, is a type of allowance which the employer provides to employees. This allowance covers the travel expenses for the employee when he is on leave from work. Furthermore, under Section 10(5) of the Income Tax Act, this allowance is exempt for income tax. This is because the Leave Travel allowance is not considered as a part of the employee’s net income for the year.
What are the conditions needed for claiming Leave Travel Allowance?
- One has to be actually travelling to claim this benefit.
- Only travels in India are eligible for this benefit. International travels are ineligible and cannot be used to claim this allowance.
- The travel allowance is applicable for the employee as well as his family members. The following members are eligible for travel allowance under LTA:
- Children, but a maximum of two
- Wholly or mainly dependent parents
- Dependent siblings
What travels are eligible for LTA exemption?
- LTA is only applicable
forthe actual travelling cost. This is the cost of air, railway or bus fare which the employee incurs while travelling. although, the employee has to submit the fare receipts as actual proof.
- The expenses such as local conveyance usage, sightseeing, lodging, food, shopping, etc, are not applicable for LTA exemption.
- The exemption is also limited to how much LTA the employer can actually provide. To understand this point, lets look at the two case studies below.
Case Study 1
LTA provided by employer = Rs 40,000
Expenses incurred by employee = Rs 30,000
Thus, tax exemption for employee = Rs 30,000
Hence, if the employer provides Rs 40k for LTA but the employee only uses Rs 30k out of it, then only that Rs 30k is exempted from taxation and the rest is added to the employee’s taxable salary.
Case Study 2
LTA provided by employer = Rs 40,000
Expenses incurred by employee = Rs 50,000
Thus, tax exemption for employee = Rs 40,000
In this case, since the employer provides a benefit of up to Rs 40k only, the employer will get LTA exemption also for Rs 40k only. The remaining amount of Rs 10k will not comber under LTA exemption and employer will have to pay it himself.
Which travel conveyance are covered under LTA?
- For Air travel, only the economy class fares from Air India airlines can get LTA exemption. Additionally, only the shortest routes available are exempt. So one cannot expect to take detours to multiple locations before reaching their final destination.
- For Railway travel, there is a restriction for up to first-class fares. Here also, only the shortest possible route is exempt.
- For Public Bus, fares up to deluxe bus are exempt.
- Additionally, multiple destinations are not covered under LTA, via any travel mode. Only the shortest route from origin to the destination is exempt.
Can Leave Travel allowance be claimed multiple times in a year?
- LTA exemption is available for only two travels within a duration of four years.
- The current applicable period is between January 2018 to December 2021. Similarly, the last applicable period was January 2014 to December 2017.
- Furthermore, if an employee does not claim one or any of his LTAs in a given period of four years then one LTA is carried over to the next block of four years.
- But this carried over LTA has to be used within the first year of the four years.
How to claim LTA?
- LTA benefits cannot be claimed in your ITR filing. They can only be claimed through your employer.
- One needs to submit sufficient proof of travel to the employer by a given date. This could be in the form of the fare ticker or boarding pass or invoice of travel agent.
- Some organizations are very particular about the definition of Leave Travel Allowance. Hence, they only give LTA benefit when the employee takes an official leave and travels during that leave period. For travels during official holidays and weekends, they do not accept LTA claim benefits.
Tips & tricks for claiming LTA
- If one does not go on any travels then the LTA benefit becomes part of their taxable salary. Hence it is important to utilize the LTA properly.
- By definition itself, LTA is a travel reimbursement and cannot be taken as part of the employee’s wages.
- Since LTA is not a part of wages, PF and ESI contributions cannot be
- Some employees try to cheat their employer by booking refundable tickets which they later cancel and also take the LTA benefit for it. Some employees may also photoshop fake travel tickets. These are not recommended.
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