What is Leave Travel Allowance (LTA)?
Leave Travel Allowance (LTA) is a type of allowance which is provided by the employer to his employee who is travelling on leave from the work to cover his travel expenses. LTA is an important component of the salary of the employee as it is eligible for income tax exemption as per the Income Tax Act, 1961. Under Section 10(5) of the Income Tax Act, the LTA received by the employee will not be a part of his net income of the year.
Eligibility Criteria for Claiming LTA
- LTA can only be claimed on actual travel cost. All the mediums of the travel i.e road, rail or air are claimable under LTA. However, the employee must submit a valid proof of cost to claim the leave travel allowance.
- LTA can be claimed only on the travel expense. Food or stay or any such expenses excluding travel cannot be a part of it.
- LTA can only be claimed on domestic travel expenses. You can not claim LTA on the expenses incurred during the international trip (if any) of the employee.
- It should be noted that the employee can not claim LTA in every financial year. LTA can be claimed only for two journeys in a block of 4 years. The block years for the LTA purposes are decided by the government. The current running block for claiming LTA is calendar years 2018-2021. The last running block was 2014-17.As the LTA can only be claimed when the employee has been on leave from work for travelling purposes, the employee should mark that period as ‘leave’.
Can I carry forward the unclaimed LTA of a block year to the next block year?
If the employee has not claimed LTA in the last running block or just claimed it for once, he can still claim one additional LTA in the next block of calendar years under the carry over concession rules under which the employee can claim LTA tax-breaks on 3 journeys made in the current block of years. However, in order to utilize the carry over concession facility, the one LTA exemption with respect to the journey must be claimed in the first calendar year of the next block.
So for example, as an employee, you made just tax exemption claim under LTA only once in the last block of the year i.e. between 2014-2017. Then you are eligible to make LTA claims upto 3 journeys in the current block i.e. between 2018-2021. However, your first claim must be made in the first calendar year of the current block i.e. in 2018.
What expenses can be included under LTA?
The tax exemption benefits are available only on the actual travel expenses incurred on the rail, road, or air fares only subject to the following conditions.
Travel by Air: The air fare of the economy class of the national carrier (Air India) by the shortest route or the actual expenditure incurred, whichever is less, can be claimed for tax exemption.
Travel by Train: If the place of the origin and destination are connected by rail and journey is performed by any mode of transport other than air, then the First Class AC rail fare by the shortest route or the actual amount spent, whichever is less, can be claimed for tax exemption.
Travel by Other Modes :
- If the place of origin and destination of the journey are not connected by rail but a recognised mode of transport exist for the route then the first class or deluxe class fare for the shortest route for the recognised mode of transport or the actual expenses incurred, whichever is less, is eligible for tax exemption claim.
- However, if there is no recognised mode of transport for the route, then the amount equivalent to the first class A.C. rail fare of the distance covered assuming that the journey has been performed by rail can be claimed for tax benefit.
Who all are included in the travel cost claimed for tax-break under LTA?
The LTA tax exemption claim can be made for domestic travel of self or family members. The family includes your spouse and children, and dependent parents and siblings. LTA tax break is not available for more than 2 children if born after October 1, 1998. This restriction does not apply to children born before this date.
How can I claim LTA in case of a multi-destination journey?
If an employee makes a journey to multiple destinations while travelling, then tax break under LTA can be claimed only admissible expenses incurred on the shortest route available from the place of origin and farthest point of the journey.
Is It necessary to submit travel cost bills to the employer?
The Income Tax Act doesn’t mandate the employer to collect proof of expenses claimed for LTA tax breaks, it is advisable to keep such bills safe to justify the expenses in case the tax authorities demand it. Therefore, it is not necessary to submit such bills of expenses to the employer, but the tax authority can demand it by issuing a notice.
What happens to my LTA if I don’t travel at all or don’t submit travel bills?
Since the LTA is a component of your salary structure itself, it gets credited to your account as part of your salary on a regular basis. However, if you don’t travel at all or don’t have valid proof of travel, then you can not claim the LTA received for tax exemption purpose. In such a case, the received LTA will be added to your net taxable income.