Leave Travel Allowance (LTA)
Leave Travel Allowance (LTA) is an allowance included in the salary of many employees. LTA is generally included by most of the organizations due to the tax benefits attached to it.
Under Section 10(5) of the Income-Tax Act, 1961, read with Rule 2B (Commonly known as LTA Rules), the amounts spent on the travel by an employee while he is on leave, can be claimed by him as an exemption and is tax-free. Hence, this exemption can be claimed only by a salaried individual. However, this is subject to certain conditions and limitations.
Important points to note while claiming LTA:
Travel within India: The LTA exemption can be claimed only for travel done within India. Hence, travel done abroad / outside India is not considered.
Travel can be done with family i.e ( spouse, children, dependent parents, and siblings). An individual will not be able to claim the exemption in relation to travel with his / her parents, brother or sisters unless they are mainly dependent on the individual.
Restriction on the number of children: As per LTA Rules, the exemption is not available for more than two children born after October 01, 1998. This restriction does not apply in respect of children born before this date, and also in case an individual, after having one child, begets multiple children (twins or triplets or quadruplets, etc.) on the second occasion. The term “Child” also includes a step-child and /or an adopted child of the individual.
Amount of exemption is limited to travel expenses: The amount of tax-free LTA is limited to the Allowance received or the cost of travel whichever is less. Hence, if one spends RS 10,000 on traveling to a hill station in India whereas the LTA in salary is Rs. 20,000, then the exemption is limited to Rs. 10,000.
The periodicity of exemption: LTA rules allows an individual to claim LTA exemption only in respect of two journeys performed in a block of four calendar years. The block of the four years are calendar years and the current block is 2018-2021. Hence, a person can claim the exemption in say 2018 as well as 2019 but then cannot claim exemption in 2020 or 2021. Alternatively, if you don’t claim any benefit in 2018 or 2019 you can claim it in 2020 and in 2021.
It is interesting to note that LTA rules allow you to claim only one journey in a year. So, even if you take two journeys in one year, you can claim the LTA benefit just for one journey in that year and you lose the benefit on another journey. Though your spouse can claim the LTA for the other journey in case he/she is working and gets LTA.
Exemption of “Fare Only”: As per LTA Rules, LTA exemption can be claimed is limited to the extent of actual travel costs incurred by the employee. The total cost of the holidays like hotel expenses, expenses on food, stay, etc. is not covered, only the traveling cost is covered. The rules also mention the amounts to be considered for exemption. For example:
- If a journey is performed by Air – Economy Air fair of National Carrier by the shortest route or the actual amount spent whichever is less will be exempted.
- If the journey is performed by Rail – Exemption amount is least of the A.C. first-class rail fare by shortest route or the actual amount spent
- If the place of origin and destination place of the journey is connected by rail but the journey is performed by other modes of transport other than air- A.C. first-class rail fare by shortest route or actual amount spent whichever is less is exempt.
- If the place of origin & destination is not connected by rail (partly/fully) but connected by other recognized Public transport systems then, the First class or deluxe class fare by shortest route or actual amount spent whichever is less is exempt.
- If the place of origin & destination is not connected by rail(partly/fully) and not connected by other recognized Public transport system also – AC first-class rail fare by the shortest route (as the journey had been performed by rail) or the amount actually spent, whichever is less is exempt.
Carryover concession for Leave Travel Allowance
Leave Travel Allowance (LTA) comes with a carry forward feature in case it has not been used. It can be brought forward and claimed in the first year of the next block. However, only one LTA can be brought forward and claimed in the first year of the next block.
For example in a 4-year block of 2014-2017, you claimed LTA only once. Then you will be allowed to carry forward one LTA to 2018 (first year of next block, i.e. 2018-21). Thus, during calendar years 2018-2012, you will be able to claim LTA three times, of which one must be in 2018.
Clubbing of the LTA allowance
The LTA rules allow you the clubbing of exemption in case you do not utilize it in one year. For example, you get LTA of Rs 10,000 p.a. and you do not utilize it for the first year, then it is carried forward to the next year. In the second year, you can claim the amount of Rs.20,000 as tax exemption provided you spend it according to the conditions mentioned above.
Proof of travel – Employee’s responsibility
Employers while assessing the travel allowance claims, can ask for proof of travel bills etc. However, in the case of L&T v/s ITI, the Supreme Court held that employers are under no statutory obligation to collect bills and details to prove that the employees had utilized the amounts obtained against these claims on travel and related expenses. However, the assessing officer can still ask for the employee to provide details of travel. Hence, an individual is required to maintain the proof of the travel himself.