LTA tax exemption falls under section 10(5) of the Income Tax Act, wherein the employee can get his/her travel expenses reimbursed from the employer. The expenses include only travelling expenses and not other expense such as food, shopping, lodging etc.
The current financial year 2019-2020 is going to end soon, and most taxpayers are making investment declarations in a bid to save income tax. Among the many options available, Leave Travel Allowance (LTA) is one of the ways to save tax. This comes with the added benefit of the employee getting to spend quality time with his/her family, and at the same time reduce the burden of tax liability up to a certain limit.
Leave Travel Allowance (LTA) or Leave Travel Concession (LTC) is the employer’s reward to employees for the hard work, wherein they grant the employees leave while bearing all travel expenses. Additionally, LTA also helps the employee save tax.
LTA tax exemption falls under Section 10(5) of the Income Tax Act, wherein the employee can get his/her travel expenses reimbursed from the employer. The expenses include only travelling expenses and not other expense such as food, shopping, lodging etc. Travel expenses include expenses of the employee along with his/her family to any place in India, twice in a period of four calendar years. The current ongoing block is 2018-21.
Who can claim LTA/LTC?
The Income Tax Department has described who all can claim reimbursement under the word ‘family’. For the purpose of claiming LTA, the family includes – the employee’s spouse and two children, dependent parents, and dependent brothers and sisters.
How much can you claim under LTA?
Also, you cannot just go around buying the most expensive ticket, just because it will get reimbursed by your employer. Travel fares are exempt as per certain conditions subject to the amount actually incurred by you. Note that, the amount incurred on travel expenses should not exceed the amount specified in your CTC.
For instance, if you are travelling by air, the amount of tax exemption will include the amount actually spent on airfare or the price of an economy class ticket for the shortest route, whichever is lower. In case your journey mode is a train, then the amount actually spent on train fare, or first-class ticket for the shortest route, whichever is lower, will qualify for tax exemption. If you use any other mode of travel, (if the places are not connected by rail and air):
1. If recognised transport system exists, then the actual amount spent on the transport or the value for deluxe 1st class fare on such transport by the shortest route, whichever is lower will be considered.
2. If recognised transport system does not exist, then 1st Class AC fair of the shortest route will be considered, as if the journey had been done by rail or actual amount spent, whichever is lower.
Here is how you can claim LTA for tax saving:
To claim LTA for the purpose of saving tax, the employee firstly needs to fill in the details at the time of income tax proof declaration (in Form 12BB). He/she then will be needed to submit the proof of his/her travel like the boarding pass, rail tickets, travel agent’s invoice, etc. to the employer. The employer will then consider it, after deducting TDS for the subsequent months.
Keep in mind that many organizations do not provide LTA or LTC in their employee’s salary structure. Hence, check with your employer before claiming LTA or LTC.
Also note that exemption is only allowed on actual travel cost, and for domestic travels, and international travels are not included. The tax exemption under LTA or LTC can be claimed twice in a block of 4 calendar years, and not financial years. Currently, the block is 1st Jan 2018 to 31st Dec 2021.