The Income Tax Act, 1961 provides various exemptions to the salaried class apart from deductions such as LIC premium, housing loan interest, etc. While deduction is something that is reduced from the total taxable income, exemption means exclusion from the total taxable income. Such exemptions enable the employers to structure the Cost to Company (CTC) of employees in a tax efficient manner. One such exemption available to the salaried class under the law which is widely used by employers is Leave Travel Allowance (LTA) /Leave Travel Concession(LTC). LTA exemption is also available for LTA received from your former employer w.r.t travel after the retirement of service or termination of service.
Let’s understand in detail about the Leave Travel Allowance.
What is Leave Travel Allowance(LTA)?
As the name suggests, it is an exemption for allowance/assistance received by the employee from his employer for traveling on leave. Though it sounds simple, many factors need to be kept in mind before planning the travel for the purpose of claiming LTA exemption. The Income Tax Act provision has laid down rules with respect to claiming LTA exemptions.
Conditions for Claiming LTA
Let us understand the conditions/requirements for claiming the exemption.
1. Actual journey is a must to claim the exemption
2. Only domestic travel is considered for exemption i.e., travel within India. No international travel is covered under LTA
3. The exemption for travel is available for the employee alone or with his family, where ‘family’ includes the employee’s spouse, children and wholly or mainly dependent parents, brothers, and sisters of the employee. Further, such an exemption is not available for more than two children of an employee born after 1 October 1998. Children born before 1 October 1998 do not have any restriction. The restriction does not get affected even if the employee has a case of multiple births on the second occasion post having the first child.
Eligible LTA Exemption
The exemption is available only on the 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, etc., are eligible for this exemption. The exemption is also limited to LTA provided by the employer.
For example, if the LTA granted by the employer is Rs 30,000 and the actual eligible travel cost incurred by the employee is Rs 20,000, the exemption is available only to the extent of Rs 20,000. The balance Rs 10,000 would be included in the taxable salary income.
I. Exemption w.r.t various mode of transport
| Sl No | Scenario | Eligible exemption |
| 1 | Place of journey and destination are not connected by any recognized public transport system | The amount equivalent to the air-conditioned first class rail fare, for the distance of the journey by the shortest route, as if the journey had been performed by rail |
| 2 | Place of journey and destination are not connected by rail (partly/fully) but connected by other recognized public transport | The amount restricted to 1st class or deluxe class fare by the shortest route to the place of destination |
| 3 | Place of journey and destination are connected by rail | The amount spent for any mode of transport other than by air, restricted to air-conditioned first class rail fare by the shortest route to the place of destination |
| 4 | Journeys performed by air | The amount is restricted to the air economy fare of the national carrier(Indian Airlines or Air India) by the shortest route to the place of destination. |
II. Can LTA exemption be claimed on every vacation?
No, an LTA exemption is available for only two journeys performed in a block of four calendar years.
Block Year
A block year is different from a financial year and is decided by the Government for LTA exemption purposes. It comprises of 4 years each. The very first 4-year block commenced from 1986. List of block years are 1986-1989, 1990-93, 1994-97, 1998-2001, 2002-05, 2006-09, 2010-13 and so on. The block applicable for the current period is the calendar year 2018-21. The previous block was the calendar year 2014-17.
Carryover of Unclaimed LTA
In case an employee has not availed exemption with respect to one or two journeys in any of the block of 4 years, he is allowed to carry-over such exemption to the next block provided he avails this benefit in the first calendar year of the immediately succeeding block. Consider the following example for better understanding:
A. Where carry over exemption is claimed in the first calendar year of the immediately succeeding block
| Particulars of journey | Block year 2014-17 | Block year 2018-22 |
| April 2015 | Exemption claimed in April 2015 | NA |
| June 2018 | NA | Exemption claimed in June 2018 (considered to be carried over from the previous block) |
| March 2020 | NA | Exemption claimed in March 2020 |
| January 2022 | NA | Exemption claimed in January 2022 |
B) Where carry over exemption is not claimed in the first calendar year of the immediately succeeding block
|
Particulars of journey |
Block year 2014-17 |
Block year 2018-22 |
| April 2015 | Exemption claimed in April 2015 | NA |
| June 2019 | NA | Exemption claimed in June 2019 (Can’t be considered to be carried over from the previous block as travel should have been performed in 2018 itself) |
| March 2020 | NA | Exemption claimed in March 2020 |
| January 2022 | NA | No exemption available as two eligible journeys already claimed. (Maybe claimed by the working spouse of the employee receiving LTA) |
Procedure to Claim LTA
The procedure to claim LTA is generally employer specific. Every employer announces the due date within which LTA can be claimed by the employees, and may require the employees to submit proof of travel such as tickets, boarding pass, invoice provided by the travel agent, etc., along with the mandatory declaration.
Though it is not mandatory for employers to collect proof of travel, it is always advisable for employees to keep copies for their records, and also to submit to the employer based on the LTA policy of the company/to tax authorities on demand.
Multi-Destination journey
Income tax provision provides exemption w.r.t travel cost incurred on leave to any place in India. Conditions pertaining to the mode of transport also makes reference to the place of ‘origin’ to the place of ‘destination’ and the route which must be the shortest available route.
Hence, if an employee is traveling to different places in a single vacation, the exemption can only be availed for the travel cost eligible from the place of origin to the farthest place in the vacation by the shortest possible route.
LTA Exemption for Vacation on Holidays
Many organizations that go strictly by the wordings of the income tax provision are allowing employees to claim LTA only if the employee applies for leaves and travel during that time. Such organisations may reject LTA claims for travel on official holidays or weekends.
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