LEAVE TRAVEL ALLOWANCE
Multipoint
trip: Tax break is on cost of direct travel to farthest place
The
last date for submission of investment proofs for availing tax deductions for
the financial year (FY) 2023-24 is March 31, 2024. If your office’s human
resource personnel have asked for them, remember to submit your proofs for
Leave Travel Allowance (LTA) tax benefit, too, if you qualify.
The
Income-Tax (I-T) Act, 1961, offers various tax exemptions to both public-and
private-sector salaried workers. One key exemption is the LTA, designed to
cover travel expenses incurred by employees during their leave.
“LTA
is a part of an employee’s salary structure and qualifies for income-tax
exemption under Section 10(5). This unique feature allows salaried employees to
deduct the LTA from their taxable income, resulting in potential tax savings.
“The
allowance is exempt from tax to the extent of actual expenditure incurred for
journeys undertaken in India by the individual and their family. Any unutilised
amount is taxable as a perquisite in the hands of the employee.”
Who
can claim LTA?
The
tax exemption under LTA can only be availed by the employee and their immediate
family members (including spouse, children, wholly or mainly dependent siblings
or parents). “Only those individuals are
eligible to claim this allowance who have LTA as a part of their salary
package. And the benefit can only be claimed if the employee has actually gone
on leave and travelled.
Conditions
for claiming LTA
LTA
can be claimed only for domestic travel and is available for two journeys
within a block of four years. Any unused LTA from a block can be claimed in the
first year of the next block. It expired if not claimed within that timeframe.
The current block is 2022-2025 (i.e., January 1, 2022, to December 31, 2025).
Exemption
can be claimed only for one trip in a calendar year. “Exemption is only on
actual travel costs, excluding lodging, food and other incidental expenses.
The
exemption is not for the entire expenditure but up to the extent of LTA
provided by the employer.
Multi-destination
journeys
Specific
rules apply if the employee travels to multiple destinations during a vacation.
“If an employee travels to different places during a single vacation, the
exemption can only be availed for the eligible travel cost from the place of
origin to the farthest place visited during that vacation by the shortest
possible route.”
Most
economical mode eligible
The
I-T Act imposes a restriction on the class of travel for which you can avail
LTA. “The most economical mode of travel (bus, train, or air) is considered for
exemption for your specific journey.”
The
idea is that the tax benefit should not cover luxury or higher-cost options. For
air travel, the eligible amount is the economy class airfare of the national
carrier (Air India) for the shortest route to the destination.
For
rail travel, the AC first-class fare by the shortest route to the destination
is eligible.
If
the destination is not connected by rail, the fare of any other mode of public
transport is considered. If public transport is not available, then AC first
class rail fare for the distance to the destination by the shortest route is
considered (as if the journey was undertaken by rail).
Maintain
proofs
While
children are eligible, that LTA tax exemption cannot be availed for more than
two children born after October 1, 1998.
“An
individual should maintain a logbook and should have tickets and other proof of
travel.
Remember,
if a journey includes a segment outside India, it cannot be considered as
travel within India, even if it starts and ends in India, and is not eligible
for LTA benefit.
LTA
BENEFITS
Claim the right amount
- This exemption is available only on actual travel costs, i.e. the air, rail or bus fare incurred by the employee
- No expenses such as local
conveyance, sightseeing, hotel accommodation, food are eligible for this
exemption
- The exemption is also
limited to LTA provided by the employer
- For example, if LTA granted
by the employer is Rs 30,000, and the actual travel cost incurred by the
employee is Rs 20,000, then only Rs 20,000 will be available as an exemption
and the balance of Rs 10,000 will be included in taxable salary income
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