Everything you need to know about Leave Travel Allowance (LTA)
Leave Travel Allowance (LTA) is the most common element of compensation adopted by employers to remunerate employees due to the tax benefits attached to it. LTA is the remuneration paid by an employer for employee’s travel in the country, when he is on leave with the family or alone. LTA amount is tax free. LTA is exempt from taxes under the income tax act. Given here are some interesting and relevant aspects about Leave Travel Allowance which you as a salaried employee must keep in mind.
Exemption of Fare Only – LTA exemption can be claimed when the employer provides LTA to employee for leave to any place in India taken by the employee and their family. Such exemption is limited to the extent of actual travel costs incurred by the employee. The total cost of stay and other expenses is not covered, only the travelling cost is covered.
Meaning of Family for LTA – The meaning of ‘family’ for the purposes of exemption includes spouse and children and parents, brothers and sisters who are wholly or mainly dependent on you.
Travel within India only allowed– Travel has to be undertaken within India and overseas destinations are not covered for exemption.
Exemption on Actual Travel Expense – For example, where an employer provides LTA of INR 40,000, but an employee spends only INR 30,000 on the travel cost, then the exemption is limited to only INR 30,000. Travel cost means the cost of travel and does not include any other expenses such as food, hotel stay etc.
Restriction on Number of Child for Claiming LTA – Exemption is not available for more than two children of an individual born after October 01, 1998. This restriction does not apply in respect of children born before this date, and also in cases where an individual, after having one child, begets multiple children (twins or triplets or quadruplets, etc.) on the second occasion. The term “Child” includes a step-child and an adopted child of the individual.
Is exemption available every year?
No. The tax rules provide for an exemption only in respect of two journeys performed in a block of four calendar years. The current block runs from 2014-2017. If an individual does not use their exemption during any block on any one or on both occasions, their exemption can be carried over to the next block and used in the calendar year immediately following that block.
In such cases, the journey performed to claim such exemption will not be counted for the purposes of regulating future exemptions allowable for the succeeding block. For example, Mr. X joins an organization on April 1, 2012 and is entitled to an LTA of Rs 40,000 per annum (financial year 2012-13).
X undertook a journey in December 2012 and used his exemption. However, for his LTA entitlement for 2013-14, he did not undertake a journey during the calendar year 2013.
He can undertake the journey in 2014 to claim the exemption in relation to the LTA. He would also be able to use the LTA benefit for two other journeys which he can undertake in the current block 2014-17 in relation to his LTA entitlement for future years.
Proof of travel
Employers while assessing the travel allowance claims do not need to collect proof of travel to submit to the tax authorities. Though it is not mandatory for employers to demand proof, they still have the right to demand documentary proof depending on its policy. The assessing officer can still ask for the employee to provide details of travel.
The individual however needs to keep copies for his or her own records. Such proofs are helpful at the time of the audit of the tax return of the individual. Proof of travel could be, for example, tickets, boarding passes, invoice of travel agent, duty slip etc.
Does claiming LTA in alternate years mean that the two year entitlement gets added together?
It does. If you are entitled to an LTA of INR20,000 per year and do not utilize it for the first year it is carried forward to the next year. In the second year you can claim the entire amount (INR40,000 i.e. 20,000 + 20,000) as tax exempt provided you spend it according to the specification in LTA tax laws as detailed above.
Carry over concession for Leave Travel Allowance – Leave Travel Allowance (LTA) comes with a carry forward feature. You can carry forward your Leave Travel Allowance in the situation that it has not been used. It can be brought forward and claimed in the first year of the next block. However the LTA claim can be brought forward and claimed only in the first year of the next block.
Can I Claim LTA Twice in a Year – Though you can claim two journeys in a block of four years, you can claim the LTA benefit just once in a year. You cannot claim both the journeys in one year. So, while a person can get an income tax exemption for two journeys in a block of four calendar years, he can make a trip only once a year. If you make two trips in a year, you lose one. One way out is to claim one and make your spouse claim the other in case your spouse is also working.
LTA in case of Switch of JOB – If you switch jobs, you can get the LTA not only from your present organization but also from your former employer, if the concession is lying unutilized. Let’s say that, in the 2010-13 block, you claimed LTA in 2011. In 2012, you switched jobs. You can still claim your second journey with your new employer. Of course, your new employer will ask to look at your earlier tax returns to see whether it has been claimed or not.
LTA is often the most unutilized of exemptions but which can let you save huge amount of taxes if claimed. So this time make sure that your holidays not only give you that much needed break but also save you taxes.
This article was first published on H&R Block India