- Date : 10/02/2020
- Read: 6 mins
Don't know how to make the most of Leave Travel Allowance (LTA) to save on taxes? Here's what you should know.
The year-end is around the corner, with the school holidays in its wake, a lot of people are probably mulling over the same set of questions that crop up every time their kids’ vacations approach: (a) Can I take them somewhere? (b) Do I have any leave left? (c) Can I claim LTA this year?
The first two points are relatively easy to address – if the allotted number of annual leaves have not been used up, one can start thinking of taking a vacation, provided ready cash is available. If both these issues are taken care of, the third becomes important: can LTA be claimed for that year?
Related: 7 Must have things for a frequent traveller
But what is LTA, and why is the year relevant? Welcome to one of the least appreciated modes of tax-saving schemes available to a salaried individual. Frequently mentioned but not always fully understood, LTA or Leave Travel Allowance is often variously interpreted by HR personnel. It’s often a grey area and practices may differ from company to company.
So, what is LTA?
The name is self-explanatory: LTA is the allowance one receives from one’s employer for travel expenses during annual leave. This reimbursement is exempt from tax, but the ‘travel’ in LTA refers to travelling from the resident city to principal destinations, and not local travel at the destination(s).
It should be noted that travel reimbursement covers only domestic travel by public modes of transport – road, rail, or air – and not international travel. If personal cars are used to reach destinations that can be reached by the permitted modes of transport, the claimant is eligible for tax deductions only on fuel and toll charges. LTA does not cover the money spent on accommodation, sightseeing, food, or shopping.
Related: These 7 perks can give you a better job satisfaction and work-life balance
As LTA is payable by the employer, it cannot be availed of by an independent businessman or a self-employed person. In other words, an employer cannot pay LTA to oneself.
Is there any leeway on the mode of travel?
It is understood that there may not be any recognised public transportation system in place to reach all destinations, or one may require a mode of transport beyond that permitted for a grade of employee. In such cases, exemptions are allowed with conditions, depending on the mode of travel.
Is proof of travel mandatory?
While it is not considered mandatory for employees to furnish proof of travel while applying for LTA reimbursement, it’s better to be prepared with proof such as boarding passes, flight tickets, invoice of a travel agent, duty pass, etc. The assessing officer of the IT department or the employer just might ask for proof – and it is within their right to do so.
Employers are generally lenient in this case as they don’t usually have to submit their employees’ travel details to the tax authorities for assessing travel allowance claims. However, the employee is advised to keep proof of their travel.
Related: Tax saving components of your CTC
What’s the definition of ‘family’?
For LTA, ‘family’ includes the employee’s spouse, two children (born after October 1, 1998), dependent parents, and dependent siblings. If the children were born before the cut-off date, exemptions can be for any number of children – including twins, triplets, or more – and even adult children over 18 can be included as no age limit is specified, provided they are not tax assessees.
Can LTA be claimed every year?
LTA is included in an employee’s CTC (cost to company) package, but under the IT rules, it cannot be claimed every year but only twice in a ‘block’ of four calendar years – starting January 1 and ending December 31. The first four-year block began in 1986, and has continued since then in sequential blocks of 1986-1989, 1990-93, 1994-97 and so on; the previous block was 2013-17 that ended on December 31 last year, while the current block began on January 1 this year and spans the 2018-21 period.
This means that though LTA exemption can be claimed twice in a block of four years, it cannot be done twice in the same year. Also, if LTA is not claimed in any given block, it gets carried over to the first year of the next block. In this case, it would be the current calendar year of the 2018-2021 block years. In other words, the claim has to be made by December 31, 2018.
Moreover, if one’s spouse is also eligible to claim LTA, it has to be done individually – for a separate journey and not shared for a single journey. Each spouse is individually eligible for two LTAs in a block of four years; this translates to four LTAs claimed in one single block. The travel allowance can be claimed alternately between the spouses – so an annual vacation can be taken every year in one single block.
Related: Non 80C items that help you save tax
Can one not travel and claim the allowance?
Yes, even this can be done: an employee eligible for LTA can skip travelling totally but receive his or her LTA component; however, this amount will attract tax, as tax exemptions are applicable only on the actual amount spent on travelling. If there is no travel, there is no tax exemption.
There’s another slightly different scenario: what if an employee spends less than the amount they are eligible for? Hypothetically speaking, if the employee is eligible for an LTA of Rs 20,000 but spends Rs. 15,000, tax will have to be paid on the Rs. 5,000 received but unspent. Alternatively, if the travel costs exceed Rs. 20,000, the employee is eligible for tax deductions up to the permitted limit of Rs. 20,000.
Last words
The 100% tax exemption for LTA comes under Section 10(5) of the Income Tax Act, 1961 with Rule 2B, which also details the conditions that apply for the tax breaks. While it is one of the best tax-saving tools an employee can avail of, tax exemptions under this head can only be sought if the employer has included LTA in the employee’s CTC, because, as stated earlier, it’s not a common salary component.
Whether a company wants to provide LTA to its employees is solely at its discretion; companies tend to have different LTA policies based on designation, pay scale etc. Therefore, employees are advised to study the LTA rules of their company, as these could be different from that of their friends employed elsewhere.
The year-end is around the corner, with the school holidays in its wake, a lot of people are probably mulling over the same set of questions that crop up every time their kids’ vacations approach: (a) Can I take them somewhere? (b) Do I have any leave left? (c) Can I claim LTA this year?
The first two points are relatively easy to address – if the allotted number of annual leaves have not been used up, one can start thinking of taking a vacation, provided ready cash is available. If both these issues are taken care of, the third becomes important: can LTA be claimed for that year?
Related: 7 Must have things for a frequent traveller
But what is LTA, and why is the year relevant? Welcome to one of the least appreciated modes of tax-saving schemes available to a salaried individual. Frequently mentioned but not always fully understood, LTA or Leave Travel Allowance is often variously interpreted by HR personnel. It’s often a grey area and practices may differ from company to company.
So, what is LTA?
The name is self-explanatory: LTA is the allowance one receives from one’s employer for travel expenses during annual leave. This reimbursement is exempt from tax, but the ‘travel’ in LTA refers to travelling from the resident city to principal destinations, and not local travel at the destination(s).
It should be noted that travel reimbursement covers only domestic travel by public modes of transport – road, rail, or air – and not international travel. If personal cars are used to reach destinations that can be reached by the permitted modes of transport, the claimant is eligible for tax deductions only on fuel and toll charges. LTA does not cover the money spent on accommodation, sightseeing, food, or shopping.
Related: These 7 perks can give you a better job satisfaction and work-life balance
As LTA is payable by the employer, it cannot be availed of by an independent businessman or a self-employed person. In other words, an employer cannot pay LTA to oneself.
Is there any leeway on the mode of travel?
It is understood that there may not be any recognised public transportation system in place to reach all destinations, or one may require a mode of transport beyond that permitted for a grade of employee. In such cases, exemptions are allowed with conditions, depending on the mode of travel.
Is proof of travel mandatory?
While it is not considered mandatory for employees to furnish proof of travel while applying for LTA reimbursement, it’s better to be prepared with proof such as boarding passes, flight tickets, invoice of a travel agent, duty pass, etc. The assessing officer of the IT department or the employer just might ask for proof – and it is within their right to do so.
Employers are generally lenient in this case as they don’t usually have to submit their employees’ travel details to the tax authorities for assessing travel allowance claims. However, the employee is advised to keep proof of their travel.
Related: Tax saving components of your CTC
What’s the definition of ‘family’?
For LTA, ‘family’ includes the employee’s spouse, two children (born after October 1, 1998), dependent parents, and dependent siblings. If the children were born before the cut-off date, exemptions can be for any number of children – including twins, triplets, or more – and even adult children over 18 can be included as no age limit is specified, provided they are not tax assessees.
Can LTA be claimed every year?
LTA is included in an employee’s CTC (cost to company) package, but under the IT rules, it cannot be claimed every year but only twice in a ‘block’ of four calendar years – starting January 1 and ending December 31. The first four-year block began in 1986, and has continued since then in sequential blocks of 1986-1989, 1990-93, 1994-97 and so on; the previous block was 2013-17 that ended on December 31 last year, while the current block began on January 1 this year and spans the 2018-21 period.
This means that though LTA exemption can be claimed twice in a block of four years, it cannot be done twice in the same year. Also, if LTA is not claimed in any given block, it gets carried over to the first year of the next block. In this case, it would be the current calendar year of the 2018-2021 block years. In other words, the claim has to be made by December 31, 2018.
Moreover, if one’s spouse is also eligible to claim LTA, it has to be done individually – for a separate journey and not shared for a single journey. Each spouse is individually eligible for two LTAs in a block of four years; this translates to four LTAs claimed in one single block. The travel allowance can be claimed alternately between the spouses – so an annual vacation can be taken every year in one single block.
Related: Non 80C items that help you save tax
Can one not travel and claim the allowance?
Yes, even this can be done: an employee eligible for LTA can skip travelling totally but receive his or her LTA component; however, this amount will attract tax, as tax exemptions are applicable only on the actual amount spent on travelling. If there is no travel, there is no tax exemption.
There’s another slightly different scenario: what if an employee spends less than the amount they are eligible for? Hypothetically speaking, if the employee is eligible for an LTA of Rs 20,000 but spends Rs. 15,000, tax will have to be paid on the Rs. 5,000 received but unspent. Alternatively, if the travel costs exceed Rs. 20,000, the employee is eligible for tax deductions up to the permitted limit of Rs. 20,000.
Last words
The 100% tax exemption for LTA comes under Section 10(5) of the Income Tax Act, 1961 with Rule 2B, which also details the conditions that apply for the tax breaks. While it is one of the best tax-saving tools an employee can avail of, tax exemptions under this head can only be sought if the employer has included LTA in the employee’s CTC, because, as stated earlier, it’s not a common salary component.
Whether a company wants to provide LTA to its employees is solely at its discretion; companies tend to have different LTA policies based on designation, pay scale etc. Therefore, employees are advised to study the LTA rules of their company, as these could be different from that of their friends employed elsewhere.
