lta will be deducted from salary?

LTA or Leave Travel Allowance is such an allowance and is also called LTC or Leave Travel Concession. The LTA exemption in respect to your former employer remains applicable during travel after your retirement.

What is LTA allowance?

LTA allowance is a great tax-saving tool in the hands of the employee. The LTA full form is Leave Travel Allowance, also called LTC or Leave Travel Concession. The employer pays an allowance to the employee when he/she travels alone or with family when on leave/vacation and is a tax-free allowance. The exemption is available when proof of travel is produced to the employer who reimburses the same subject to the eligibility conditions for LTA.

LTA meaning, Leave Travel Allowance, is an allowance added to your basic pay and is provided by the employer to offset travel costs when travelling alone or with family for a vacation. It applies to within the country costs of travel.

The 1961 Income Tax read and Rule 2B and Section 10(5) define the meaning, tax exemption, and conditions laid out to claim LTA tax exemption. Let us look into these briefly.

The latest update makes LTA un-applicable to taxpayers under the new tax regime. Though it is well-known that Leave Travel Allowance is tax-exempt, there are some exemptions and limits on the allowance. Here’s a list of them.

Here’s a list of expenses that are exempt under the LTA rules.

Also Read: Conveyance Allowance- Definition, Limit, Exemption and Calculation

Employees are allowed to make two LTA claims in a 4-year block. The Income Tax Department notifies the block years, which are not necessarily in line with the Financial Year used for ITR or Income Tax Return filing. For example, the previous block of 4-years was from 2014 January 1st to 2017 December 31st  and the current one from 2018-2021. Hence you can claim two journeys undertaken during this block of 4-years for tax exemptions. However, suppose the employee has not travelled during this block of years. In that case, the LTC concession for tax-exemption can also be carried over to the next FY or financial year and not the block of 4-years. Note that all expenses for food, stay, shopping, sightseeing, etc., are not covered. It is only the ticket or travel fare that is considered for LTA exemption.

Each block decided by the Government for LTA exemption comprises 4 years. The first block began in 1986. Thus the block years are 1986-89, 1990-1993, 1994-1997, 1998-2001, 2002-2005, 2006-2009, 2010-2013 and so on. The current block now is 2018-21 and the previous one from 2014-2017.

Let us consider how LTC is treated. For example, Raj is entitled to an LTA amount of Rs 35,000. He has claimed an amount of Rs 20,000 in FY 2017 as his leave travel claim. The LTA deduction applicable in this case is only Rs 10,000, and Rs 15,000 gets added to his taxable income. LTA is paid only as per the claim and for the shortest route from origin to destination and back. Also, Raj is allowed only 2 claims for LTC for 2014 to 17 (which is the current block). If Raj does not prefer a claim, he can carry over the leave travel entitlement to the next FY. This claim is not to be considered in the next block of years. Here’s a chart that explains when you can carry it over.

The employers don’t need to submit travel proof of the employees to the tax authorities for claims and assessment of LTA. But they generally have the right to collect such documentary proof for reimbursements. Hence, you should keep travel proof such as flight tickets, boarding passes, travel agent invoices, on-duty passes, or documentary travel proof. At times, the assessing tax officer or company auditors may also scrutinize these proofs submitted by the employee.

The LTA in salary structure is not like other allowances and is not common in your take-home salary. Always check the pay structure before claiming LTA. The amount available to the employee can vary from one person to another. You need to have LTA eligibility, produce bills/ tickets, etc., as proof of travel to your employer.

The procedure followed to make an LTA claim is as follows.

To be eligible to claim LTA, you will need to travel and should have taken leave to travel. Your trip can be for travel in India only and without or with family members. The LTA rules specify that the LTA benefit is not an entitlement offered to all employees. Instead, it is dependent on factors like the employee’s pay scale, designation etc. The employer makes this entitlement to an employee based on his discretion and decides the LTA amount specified in the salary contract’s leave travel allowance section.

Leave Travel Concession or Allowance is an important part of your salary structure and is also a great saving tax tool under the Income Tax Act 1961.

Also Read: Dearness Allowance (DA)- Defination, Types & DA Calculation

To claim LTC or LTA, an employee has to submit to the employer

The amount received as LTA is tax-free up to a certain limit under Section 10(5) of the Income Tax Act, 1961. This means you can deduct LTA as an exemption from your taxable income.

What is Leave Travel Allowance

LTA or leave travel concession is the allowance paid by your employer to cover your travel expenses, while you go on leave with or without your family. LTA forms a part of your cost to company (CTC) and is given as a yearly benefit but can be availed of monthly.

You can avail of an LTA from:

The amount received as LTA is tax-free up to a certain limit under Section 10(5) of the Income Tax Act, 1961. This means you can deduct LTA as an exemption from your taxable income.

Conditions to avail of LTA exemption

Let’s look at the requirements to claim LTA in your Income Tax Return.

What is LTC Cash Voucher Scheme?

The LTC Cash Voucher Scheme was first announced in Oct 2020, by Finance Minister N.Sitharaman in a bid to stimulate demand in a faltering Indian economy. It was officially ratified during the Union Budget 2021.The scheme allows you to claim LTC tax exemption without travelling provided you:

For example, if you and your family are eligible for LTC of Rs. 60,000, you would need to spend at least Rs.1,80,000 (60,000X3) to qualify for tax rebate. Though the GST would push the final invoice value over Rs. 2,00,000, your out-of-pocket expenses would be much less.

Both public as well as private sector employees are eligible for the scheme. However, the benefits are only available for those opting for the old income tax regime. In other words, those opting for the new simplified regime are not eligible.How often can one claim LTA?

LTA exemption is allowed as per block calendar years created by the Income Tax Department. You can claim LTA exemption for two journeys taken within a block of four years. The current block year runs from 1.1.2018 to 31.12.2021. Therefore, within this four-year period, you can avail of an LTA exemption for your travel expenses for two holidays. Moreover, if you do not utilize this exemption in a year, you can carry forward the benefit amount to the next year. You are also allowed to carry forward LTA to the next block that runs from 1.1 2022 to 31.12.2026.

Let's understand LTA exemption through an example:

Sanjay went on a holiday to Kerala with his family and friends. He received Rs 50,000 as LTA from his employer. However, he spent Rs 30,000 for the air tickets of his family.

The total LTA exemption he can claim is Rs 30,000, an amount he spent. The balance amount of Rs 20,000 received as LTA will be added in his taxable income​​​​​​​Who is eligible to claim LTA?Employees across public and private sectors can claim LTA benefit, regardless of when they started working. In other words, an employee does not have wait for a certain amount of time after joining a company to be eligible for LTA.  However, the maximum amount of LTA coverage is at the sole discretion of the management. If LTA is part of your CTC, it should be included in your final settlement when you leave an organisation.

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.

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.

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 :

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.

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.

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.