Leave Travel Allowance (LTA)

Section 10(5) of the Income Tax Act, 1961, along with Rule 2B, provides tax exemptions for specific travel expenses and outlines the conditions under which these exemptions apply. The rules and conditions for claiming this tax exemption are clearly defined in Section 10(5).

LTA Example

Consider an example where Mr. Krish is provided LTA of Rs.30,000 by his employer but Krish spends only Rs.25,000 on the travel cost, then the exemption is limited to only Rs. 25,000. since the exemption is only valid for travel expenses and no other expenses such as food expenses or accommodation expenses.

Latest update on Leave Travel Allowance:

Leave travel allowance is not applicable for the Taxpayers who choose the new tax regime.

Who is Eligible to Claim LTA?

LTA is available to all employees, whether in the public or private sector, without any mandatory waiting period from the date of joining. However, the coverage amounts, and specific conditions are determined by the employer and are usually settled as part of the final dues when an employee leaves the organisation.

Conditions for Claiming LTA

1. Only Domestic Travel is Covered – LTA does not apply to international trips. It applies only to domestic travel within India.

1. Eligible Family Members – The exemption is available for the employee and their family, which includes:
   1. Spouse
   2. Children (with restrictions)
   3. Dependent parents and siblings

1. Restriction on Children – The exemption applies to a maximum of two children born after 1 October 1998. However, this restriction does not apply to children born before this date or in the case of multiple births after the first child.

1. Mandatory Proof of Travel – To claim LTA, valid travel documents must be submitted.

1. Limited to Specific Mode of Travel – The exemption is applicable only to fare expenses for air, rail, or bus travel.

1. Non-reimbursable Expenses – Expenses like accommodation, food, local travel, and sightseeing cannot be claimed under LTA.

LTA Exemption Amount

LTA exemption only covers actual travel costs, which include air, rail, or bus fares. Other expenses, like hotel stays and food, are not covered. The exemption amount is limited to the LTA provided by the employer.

Example: If the employer grants Rs. 30,000 as LTA but the actual travel cost is Rs. 20,000, only Rs. 20,000 will be exempt. The remaining Rs. 10,000 will be added to taxable salary income.

Exemption w.r.t Various Modes of Transport

The table below outlines the exemption limits under Leave Travel Allowance (LTA) for different modes of transport:

LTA Exemption Rules & Special Cases

1. Unclaimed LTA: LTA is only applicable on two journeys in a four-year block period. If LTA is not utilised for both these journeys, then one of the unclaimed LTA exemptions get carried forward to the next block period. This carried forward LTA exemption can only be used in the first calendar year of the next block period, following that, it expires for the individual.

1. LTA Exemption After Changing Jobs: LTA can be availed by individuals who switch their jobs within the four-year block period. The new employer may allow the employee to claim the LTA exemption if it was not availed by the employee at their previous job. The new employer would allow this if the LTA exemption was not utilised at the previous workplace.

1. LTA for Multi-destination Travel: If an employee travels to multiple cities, LTA will cover the cost of a round-trip ticket to the farthest destination visited.
   1. Example: If an employee based in Delhi travels to Mumbai, Kolkata, and Chennai, the round-trip fares are:
      1. Delhi to Mumbai – Rs. 5,000
      2. Delhi to Kolkata – Rs. 4,000
      3. Delhi to Chennai – Rs. 6,000

1. In this case, the LTA exemption will be Rs. 6,000, covering the round-trip fare to Chennai, the farthest destination.

1. LTA for Vacations on Holidays: LTA is not applicable for travel during any holidays or during weekends. LTA can only be availed when an employee officially applies for leave for a trip or vacation. This could vary from company to company, as per their policies.

Covered Travel Expenses Under LTA

As per the Indian Income Tax Act, the following travel-related expenses qualify for LTA exemption:

1. Travel Costs: LTA exemption takes care of the travel expenses for the employee and their immediate family, including a spouse, children, and dependent parents or siblings. The travel must be undertaken by air, rail, or public transport, adhering to the guidelines set by the employer or the Income Tax Department.

1. Domestic Travel Only: LTA applies solely to journeys within India. Expenses related to international travel are not eligible.

1. Mode of Travel: Expenses incurred on travel by air, train, or recognised public transport systems are covered. The exemption is limited to the actual cost incurred or the maximum limit specified by the employer or tax regulations.

1. Leave Requirement: LTA can be claimed only for travel undertaken during approved leave, such as annual or casual leave.

Limitations of Leave Travel Allowance (LTA)

There are several restrictions associated with claiming Leave Travel Allowance (LTA). The key limitations are:

1. LTA applies only to travel expenses and does not cover other costs such as accommodation or food.

1. Travel must be within India; international trips are not eligible for LTA exemption.

1. Individuals must retain proof of travel, as it may be required for tax audit purposes.

1. LTA exemption is not available for more than two children born after 1 October 1998.

1. The exemption can be claimed only twice within a four-year block.

1. If not utilised within a block period, one unclaimed LTA can be carried forward to the next block but must be used in the first year of the new block.

1. LTA covers the employee's immediate family, including spouse, children, and dependent parents or siblings.

Step-by-step Process to Claim LTA

The process to claim Leave Travel Allowance (LTA) is based on the employer's policies. However, the general steps are as follows:

Step 1: Verify Eligibility

1. Ensure you meet the LTA eligibility criteria as per your employer's policy. This includes the required years of service by your employer.

Step 2: Employer's Travel

1. Choose your travel destination and mode of transport. Retain all necessary travel documents, such as tickets, boarding passes, and invoices.

Step 3: Submit LTA Application

1. Fill out the LTA claim form provided by your employer, including details like travel dates, mode of transport, destination, and expenses incurred.

Step 4: Provide Travel Proof

1. Attach supporting documents, such as tickets and boarding passes, to substantiate your claim.

Step 5: Approval & Reimbursement

1. Your employer will verify the claim and process the reimbursement, either as part of your salary or as a separate payment.

Carryover of Unclaimed LTA/LTC: Rules, Process, and Examples

What is LTA/LTC Carryover?

Leave Travel Allowance (LTA) and Leave Travel Concession (LTC) provide tax benefits to salaried employees for travel expenses during vacations. The exemption is available for up to two journeys in a block of four years. If an employee does not use one or both exemptions within a block, they can carry over one unclaimed exemption to the next block, subject to certain conditions.

Carrying over unclaimed LTA/LTC exemptions allows employees to maximise tax benefits, but it must be done within the first calendar year of the new block. Proper planning ensures that exemptions are not forfeited, allowing employees to make full use of their leave travel allowance benefits. By following these carryover rules, employees can effectively plan their travel while optimising tax savings.

Conditions for Carrying Over LTA/LTC Exemption

The conditions for Carrying over are as follows:

1. If an employee has not claimed LTA/LTC for one or two journeys during a four-year block, they can carry forward one exemption to the next block.

1. The carryover exemption must be utilised in the first calendar year of the new block. If not claimed within this period, the exemption expires and cannot be availed later.

1. An employee can claim a maximum of two LTA/LTC exemptions per block. Once two exemptions are used, no further exemptions can be availed, even if carryover was possible.

1. If the employee has exhausted their LTA exemptions, their working spouse, if eligible, may claim LTA separately.

Example 1: Carryover of Exemption Claimed in the First Calendar Year of the New Block

An employee has unused LTA from the previous block of 2016 to 2019 and decides to claim it in the first year of the new block from 2020 to 2023.

In this example, the employee claims the LTA exemption for the 2016 to 2019 block in June 2016. Since they did not claim a second exemption during that block, they carry it forward and claim it in February 2020, which is within the first year of the 2020 to 2023 block. They later claim two more exemptions in September 2021 and December 2022, using up their LTA eligibility for that block.

Since the carryover exemption was claimed within the first year of the new block, it is valid.

Example 2: Carryover of Exemption Not Claimed in the First Calendar Year of the New Block.

The employee does not claim the carryover LTA in the first year of the new block and attempts to claim it in 2021.

In this scenario, the employee claims the LTA exemption in June 2016 under the 2016 to 2019 block. They fail to use the carryover exemption in 2020, which is the first year of the new block. When they try to claim LTA in April 2021, it is not considered a valid carryover. The employee then claims one exemption in October 2021, but by November 2022, both allowed exemptions are used, and no further exemptions are available.

Since the carryover exemption was not claimed in the first year of the new block, it is forfeited.

Advantages of LTA Flexibility in Travel

The advantages of LTA are as follows:

• If rail connectivity is unavailable or incomplete, recognised public transport systems can be used.
• When trains do not fully connect the origin and destination, alternative authorised transit options are permitted.
• Journeys partially or fully linked by recognised public transport, instead of rail, are eligible for LTA.
• LTA benefits apply to both individual and family travel.
• Travel expenses for eligible family members are also covered under LTA.

How to Claim Leave Travel Allowance (LTA)?

The following are the regarding claiming Leave Travel Allowance:

1. The due date for claiming LTA by the employes is announced by the employer
2. The employees need to submit the proof of travel along with the mandatory declaration
3. The proof of travel to be submitted are boarding pass, tickets, invoice provided by travel agent etc.
4. Employees must keep the copies of proof of travel and submit it to the employer and tax authority when required.

The following are the steps to claim LTA depending on your employer's policies and procedures:

1. Check the LTA rules and regulation of your employer
2. Check whether you have served the required service period to become eligible to claim LTA as per the company policy
3. Plan your ravel and select the mode of transport
4. Keep all the relevant documents ready, such as:

1. Tickets.
2. Boarding pass.
3. Invoice.

1. Fill out the LTA application form and provide the required details such as destination, date of travel, mode of transport, and expenses involved.
2. Submit the application form along with the required documents.
3. The reimbursement of the mount claims as per policy will be done after successful verification of documents.
4. The reimbursement can be either as separate payment or part of salary.

Documents Required for Claiming LTA

To claim for LTA, an employee is required to submit the LTA form along with the travel bills. Though the IT Department or the employer are not required to check the tickets or bills, it is recommended to preserve the tickets, boarding pass, and other documents, so they can be provided to the LTA claim assessing officer if required.