Are you planning to go on a holiday? It is time to think about how you can save taxes while enjoying your holiday in some scenic locations of India. Salaried taxpayers cannot afford to miss out on any tax deduction benefits as it can significantly increase their tax outgo under the Income Tax Act. Depending on the salary structure offered by the employer, the employee can use the available tools in the law to lower their tax liability. Apart from deductions, the Income Tax Act also offers exemptions that help reduce their tax obligation. The Leave Travel Allowance (LTA) is one such exemption.
LTA is given by the employers to their employees for travelling while on leave, and it is claimed as an exemption subject to fulfilment of conditions stipulated under the Income Tax Act.
Terms and Conditions For LTA Claim
LTA can be claimed only against travel within India but not allowed for foreign travel. Travel by employee or their family members, including spouse, children, dependent parents, and siblings can be considered for the LTA benefit.
For employees born after October 1, 1998, the LTA is available for a maximum of 2 children. LTA benefits are available for travel expenses and exclude payment towards food and stay.
You can only claim the LTA twice in a block of four years. A block year is not like a financial year, and the Government of India decides it. Currently, we are in the block year of 2018- 2021, but due to the Covid-19 pandemic, the people could not travel.
That is why the government announced the LTC cash voucher scheme in October 2020, valid only until March 31, 2021. Under this scheme, if you had purchased any goods or availed of any services attracting a GST rate of not less than 12 per cent through digital means, you could avail the exemption of deemed LTC fare – up to Rs 36,000 per person for a maximum of four family members or one-third of the travel expenditure, whichever was less. Cash payments will not be considered to avail benefits in this scheme.
It is essential to be on leave from work during the period you are claiming the LTA. Travel expenses allowed under the LTA are subject to terms and conditions. For example, on air travel, the fare on travel by national airline using the shortest route or actual expenses incurred, whichever is less, are allowed as an exemption. Similarly, if the journey is performed through means of transport other than airways and the destination is connected through rail, the cost of first-class train fare through the shortest route or the actual expense incurred, whichever is less, can be permitted as an exemption.
Right Time To Claim LTA
The right time to claim the LTA is when you can maximize your tax-saving by using the LTA option. LTA can be claimed for up to two travels in a block of four years, and if you couldn’t claim during that block, you get a chance to carry it over to the first year of the subsequent block year.
If you are eligible to claim the LTA and have incurred actual travel expenses which can be claimed as an exemption, you should not miss it, as it can help you lower your tax liability.
Prefer claiming LTA for a journey where you have incurred higher actual expenses and matches to the LTA allowed in your salary structure. Suppose you claim LTA for a trip on which you had incurred a much lower actual cost compared to travel expense permitted as per the I-T Act and the LTA threshold specified in your CTC. In that case, you will end up exhausting your LTA option for a paltry tax saving benefit. For example, if you have travelled during your two different leave periods, i.e., ‘A’ with Rs 10,000 eligible LTA expense, and ‘B’ with Rs 50,000 eligible LTA expense during the block year. If your salary structure permits you a higher LTA, you should claim LTA for a journey ‘B’ because it will allow a greater tax exemption.
It is important to mention here that LTA depends on the salary structure offered by the employer, and it may not be available to you if your employer has not extended you this benefit. If you plan to claim the LTA benefit, always keep original travel tickets, travel agent’s invoice, and other travel proof in safe custody; you may need them if your employer asks for it.
(The author is CEO, BankBazaar.com)