With the festive season upon us, many would be planning to make the most of long weekends and go for family vacations. If rising air/train fares are hitting your vacation budget, don?t worry, as there is some relief available from taxes. An employee can claim tax benefit under Section 10(5) of the Income-Tax Act, 1961, for travel costs commonly known as leave travel allowance (LTA) exemption.
LTA is an amount received by a person as part of his salary, which he can use for travel in India while on leave. This amount is initially taxable, but a tax exemption can be claimed on the cost of the ticket for an individual and his family. The exemption does not include the cost for staying in hotel or any entertainment expenses incurred during a vacation. The tax exemption extends to travel costs incurred for spouse, children (up to 2) and parents and siblings who are dependent on the employee.
LTA can be claimed twice in a block of four calendar years. The current block of four years is 2010-2013. Thus, if you take your family to Kerala in 2011 and Kashmir in 2012, you would be entitled to avail exemption towards the air/train fare for self and family in both these years. If an employee is not able to plan any vacation in the current block of 2010-2013, he may still be able to carry forward one trip of this block to the next block, i.e., 2014 to 2017, and can take three vacations in this block.
Quantum of exemption
According to the provisions, tax exemption shall be the lower of actual expenditure incurred and amounts calculated as per the following limits:
a) If it’s air travel ? economy air fare by the shortest route
b) Any other mode
1. For destinations connected by rail ? First AC rail fare by the shortest route
2. For destinations not connected by rail ? First class or deluxe class fare, where recognised public transport system exists. If no recognised public transport system exists, first AC rail fare for equivalent distance will be considered.
Process for claiming tax deduction
Employers typically consider deduction available to an employee at the time of calculating monthly TDS. For this purpose, the employee is required to submit proof of expenses incurred (copy of boarding pass, tickets, etc). According to the Direct Taxes Code (DTC) Bill tabled in Parliament, LTA exemption may not be available, but there is a popular demand to restore this beneficial provision.
It may be a good idea to take stock of your eligibility to claim tax exemption on LTA in the current block of 2010-13 and start planning. It’s festival time and an exciting vacation awaits you.
The writer is director, tax and regulatory services, KPMG