There are different tax benefits like deductions and exemptions under the Income Tax Act, 1961, available to salaried class. Deductions include premium paid towards life insurance policies, housing loan interest, etc. which get reduced or deducted from total taxable income. On the other hand, exemptions do not get counted in the total taxable income. These exemptions also help the employer to structure the salary of the employee in a tax efficient manner. One of the exemptions which is commonly used by many employers is Leave Travel Allowance (LTA). The exemption is also available for LTA received from past employer with regards to travel after the retirement of service. This is a common benefit which can be seen in the case of employees working in the government sector. The Finance Minister Mr. Arun Jaitley, in Budget 2018 reintroduced standard deduction of Rs. 40,000. Standard deduction replaces the deductions available under the heads of Travel Allowance and Medical Allowance.
Leave Travel Allowance, as the name suggests, is a tax exemption for an allowance paid to the employee by the employer for travel expenses incurred while he or she is on leave. There are many conditions to Leave Travel Allowance and hence one needs to plan their travel accordingly for the purpose of claiming LTA exemption successfully. The Income Tax Department has listed down the rules and regulations with regards to claiming exemptions under LTA.
Let’s go through the conditions and obligations necessary for claiming the exemption.
The claimant needs to cover the actual journey in order to be eligible for claiming the exemption.
The travel should be within the boundaries of the country. Hence, international travel is not eligible to be claimed or covered under LTA.
To be eligible for exemption, the employee or the claimant must be travelling alone or with his/her family. The definition of family includes the spouse of the employee, children, dependent parents, siblings of the employee. The exemption is limited to only two children of the employee who are born after 1st October, 1998. This means children born before 1 October 1998 do not come under the restriction of two children.
Leave Travel Allowance exemption is given only on the actual cost of travel which is the transport fare incurred on bus, airplane or railway. No other expenses of travel, like sightseeing, hotel stay, expenses on food etc., can be used for LTA exemption. The actual exemption depends on the LTA provided by the employer.
Illustration – If the LTA given by the employer is INR 35,000 and actual eligible cost of travel incurred by the employee is INR 25,000, then the exemption will be granted on only INR 25,000 and balance INR 10,000 would be included in taxable salary income.
Exemption with regards to various mode of transport
| Sr.no No | Scenario | Eligible exemption |
|---|---|---|
| 1 | The destination or place of journey are is accessible by any standard mode of public transport system | The amount eligible for exemption will be calculated as per rail fare of air-con first class category for the shortest route to destination as if the journey was done through rail. |
| 2 | The destination or place of journey is not connected partly or fully by rail but connected through other standard mode of public transport system. | The amount eligible for exemption will be limited to 1st class rail fare as per the shortest route applicable to destination. |
| 3 | The destination or the place of journey is connected well by rail. | The amount eligible for any mode of transport other than air will be will be limited to 1st class rail fare as per the shortest route applicable to destination. |
| 4 | The journey to the destination is undertaken via air travel. | The eligible exemption amount is limited to the economy class air fare by national carrier (Air India) of destination through the shortest route. |
Block year is decided by the government for the LTA exemption, and it is different from the financial year. Block year comprises of a batch of 4 years each. The first block year started in the year 1986. The list of block years has since been 1986 to 1989, 1990 to 93, 1994 to 97, 1998 to 2001, 2002 to 05, 2006 to 09, 2010 to 13 and so on. The current running block year is from the period of year 2018 to 2021. The preceding block year was from year 2014 to 2017.
If an employee has not availed the exemption with regards to one or two journey(s) in the period of 4 years in block year then he/she is allowed to carry over such exemption to the next block. This is provided that he or she avails the benefit in the very first calendar year of the immediately following block. Below is an illustration for better understanding.
In the below case, the carry over exemption is claimed in the first calendar year of immediately following block
| Dates of the journey | Block year 2014-2017 | Block year 2018-2022 |
|---|---|---|
| April-2015 | Exemption claimed in April 2015 | NA |
| June-2018 | Contnent R2C2 | Exemption benefit claimed in June 2018 (considered to be carried over from previous block) |
| Mar-2020 | NA | Exemption benefit claimed in March 2020 |
| Jan-2022 | NA | Exemption benefit claimed in January 2022 |
Case 2 - Where carry over exemption is not claimed by the employee in the first calendar year of immediately following block
| Dates of the journey | Block year 2014-2017 | Block year 2018-2022 |
|---|---|---|
| Apr-2015 | Exemption claimed in April 2015 | NA |
| Jun-2019 | NA | Exemption claimed in June 2019 (this exemption cannot be considered to be carried over from preceding block as travel period needs to be performed in the year 2018 itself) |
| Mar-2020 | NA | Exemption claimed in March 2020 |
| Jan-2022 | NA | Exemption not available as the quota of two eligible journeys are exhausted by the claimant. (Can be claimed by working spouse of employee if receiving LTA) |
The procedure to claim LTA is normally depends on the employer. The employer announces the period and due date within which the employees can submit their proof of travel documents such as tickets (in original), invoices, boarding pass etc. along with necessary declaration. While it isn’t always compulsory to submit documents i.e. travel tickets, to the employer, but it is advised to always keep the copies available with one. This is because of the following reasons a) Tax Authorities can demand the same anytime for verification or if there is any enquiry b) It is advisable to submit them to the employer to ensure tax calculations are done correctly.
LTA (Leave Travel Allowance) is an important salary component for an employee which helps him/her save income tax. The travel fare or benefit is eligible for journeys taken within the boundaries of the country. Any other bill apart from travel fare cannot be used for exemption. The employee is eligible to produce travel related bills for the journey taken in an airplane, train or bus or any other authorised mode of public transport and save on taxable income. The employer adds LTA to the salary structure based on different factors such as pay-scale, job responsibilities, the title of job etc. LTA also covers travel of close family members such as spouse, brother, sister, parents, and kids provided they have taken the same journey with you.
An employee is allowed to make an LTA claim for two journeys in a single block which comprises of 4 years. These blocks are different from financial years declared by the Income Tax Department.
Presently we are in the block year running from Jan 2018 to Dec 2021. The employee is eligible to claim for two journeys in this block year. However, if the employee does not make any claim in one year then it moves on to the next year but not next block. LTA exemption can only be taken for ticket or travel fare and no other expense can be included or will be eligible for LTA.
Not all employees can be given the benefit of LTA by the employer. It is dependent on the job role, job title, salary grade, etc. The employer makes a decision on the amount to be allocated for LTA to an employee. To claim an LTA, an employee has to travel within the block year (within India). It could be a round trip with family members or solo trip.
Let’s take a case of Mr. Prem who has been given LTA by the employer of INR 30,000. Mr. Prem takes a trip but the fare ticket expenses come to only INR 25,000. In this case, the eligibility for the exemption that can be claimed by Mr. Prem will be limited to INR 25,000 only and not INR 30,000 granted the employer. This is because the expenses for actual travel will be taken into consideration and cost of food or accommodation cannot be claimed under LTA.
How many times can an employee claim leave travel allowance in a block year?
An employee can claim Leave Travel Allowance only twice in a single block of 4 years.
Is international travel or vacation by employee covered under leave travel allowance?
No, LTA is provided only for travel taken within the boundaries of India.
Can leave travel allowance be carried forward?
LTA can be carried forward to the next block but it needs to be utilised within the first year of the next block.
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