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The Income Tax Act, 1961 provides various exemptions to salaried class apart from deductions such as LIC premium, housing loan interest etc. While the deduction is something reduced from a total taxable income, exemption means exclusion from total taxable income. Such exemptions enable the employers to structure Cost to Company (CTC) of employees in a tax efficient manner. One of such exemptions available to salaried class under the law and also widely used by employers is Leave Travel Allowance (LTA) /Leave Travel Concession(LTC). LTA exemption is also available for LTA received from former employer w.r.t travel after the retirement of service or termination of service.

lta

What is Leave Travel Allowance(LTA)?

As the name itself suggests, it is an exemption for allowance/assistance received by the employee from his employer for travelling 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. Income tax provision has laid down rules with respect to claiming exemption of LTA.

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. Further, in cases of multiples births on second occasion after having one child is also not affected by this restriction.

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.

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 carryover such exemption to the next block provided he avails this benefit,in the first calendar year of immediately succeeding block. Consider the below 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

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 employees to submit proof of travel such as tickets, boarding pass, invoice provided by 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 his/her records and also to submit to employer based on 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 travelling 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 organisations 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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