Understanding Taxes

All About Leave Travel Allowance (LTA) and Tax Treatment:

LTA Leave Travel Allowance (or LTA in short) is an allowance granted by employers to meet the employees travel expenses during the year. So if you are the kinds who often go on holidays with family, it pays to use your LTA and avail of the various tax exemptions associated. What does the LTA entail and what are the various tax implications? Read on to have a clear understating and to make the most out of it.

The LTA and the Income Tax Implications:

Leave Travel Allowance is paid along with one’s remuneration. The amount that is paid out has tax exemptions subject to certain conditions. Section 10(5) of the Income Tax Act, entitles full exemption in respect of the value of the allowance received from the employer, only if:

• Amount spent should be for self and family

The amount eligible for exemption should be for travel with family, with you as the co-­traveler. By family here is meant spouse, up to a maximum of two children (multiple births after one child is accepted), parents, brothers and sisters who are wholly dependent on you.

• Amount claimed should be for travelling only

The exemption is only for expenses on travelling, either by road, rail or air, within the country. The traveling expenses should be only for the primary mode of travel from home city to destination city. All expenses incurred on hotel rooms, sightseeing, food, taxi fare, auto fare, porter charges etc… are excluded.

• Ø Travel expenses for the shortest route only

The exemption is available in respect to the shortest possible route. In case the journey is performed from the place of origin to destination in a circular or any other manner, then the exemption for that journey will be limited to the shortest route from the place of origin to destination. For air travel, the maximum amount that can be claimed as exemption is the economy class air fare. For rail or road, the maximum amount that can be claimed as exempt is the air conditioned first class rail fare to your destination by the shortest route.

LTA and the Block of Four Years:

You could claim LTA exemption in respect of any two journeys in a block of four years. The current block is 2010 to 2013. Say for example, you claim LTA exemption in 2010, then you could claim just one more till 2013. An important thing to keep in mind here is that, the four years are calendar years and not financial years.

In case you don’t make a claim in the current block:

In case you don’t avail of the LTA exemption in a particular block, whether for both the journeys or for one journey, then you could carry forward one journey to the first calendar year in the next succeeding block of four years. Thus, in the next block of four years, you could claim the carried forward travel, plus, two journeys of that particular block i.e. a total of 3 exemptions!

Let us suppose you are entitled to an LTA of Rs.10, 000 per year and you do not utilize it in the block 2010-2013. This amount could be carried forward in the next block of four years. You must thus claim this amount in 2014 and the LTA entitlement of that particular block (i.e. 10,000+10,000) could subsequently be claimed according to the specification of LTA laws as mentioned above.

When Husband and Wife both receive LTA:

In such a case, both of them could claim LTA individually as the rules of LTA apply individually to each of them. So in a block of four years, each spouse can claim LTA twice. The only restriction is that both spouses cannot claim an LTA exemption for the same journey. In other words, LTA cannot be claimed twice for the same journey.

So How Does One Claim an Exemption?

Thought there is no statutory obligation for employers to collect evidence or bills for the travel, it is better to keep them as a record. You would be required to submit a written declaration of the amount utilized for travelling to your company. In case you encash your LTA without actually performing any journey, the entire amount would be added to your salary and taxed according to relevant income tax rates. Also you could claim exemption only to the extent of your LTA eligibility. For example, if you are eligible for an annual LTA of Rs 20,000, you can claim exemption only up to that amount. You cannot claim exemption of Rs 50,000 even if you have actually spent that much. Suppose you have spent Rs.18, 000 on travel, then only that amount gets an exemption and the balance 2,000 would be taxable. 

Cheers!!