Written by : DG Gupta

A financial professional, qualified Chartered Accountants and Company Secretary examinations and enriched with experience of all types of accounting, taxation and compliance of Manufacturing as well as Service Industries

All You Must Know About Leave Travel Allowances in India!

DG Gupta
DG Gupta, CA, CS

Sep 17, 2021 16:13

Going on vacations can entail a high cost. Being a salaried individual, you can make use of your travel to reduce your tax liability. This factor is where Leave Travel Allowance (LTA) comes into the picture. The majority of companies have included Leave Travel Allowance as part of the total compensation package. As a result of the tax benefits associated with it, Leave Travel Allowance (LTA) is the most prevalent kind of remuneration used by companies to remunerate employees. It is tax-free but subject to certain restrictions and limitations.

Let's begin with an overview of what a Leave Travel Allowance is. Leave Travel Allowance or LTA is the reimbursement an employer provides for an employee's travel within the nation while on leave with his family or by himself. It is an integral component of an employee's compensation since it is exempt from income tax under the Income Tax Act of 1961. While it may seem straightforward, numerous aspects must be considered when arranging travel to obtain an LTA exemption. Income tax legislation has established guidelines for obtaining LTA exemption.

How to claim Leave Travel Allowance?

The procedures for claiming LTA vary per company. Every company declares the deadlines for the employees to claim for the Leave Travel Allowance LTA. They ask for the documents relevant to the travel, such as tickets, boarding passes, invoices issued by the travel agents, in addition to the obligatory documentation.

The importance of documentation, in this case, cannot be overstated, as the phrase goes, **'Do what you document and document what you do!' **Though it is not a typical hard and fast rule for employers to collect proof of travel, it does go a long way in ensuring transparent paperwork. By maintaining copies of their records, employees can submit them to the employer, following the company's LTA policy, to the tax authorities whenever they are requested.

How to claim LTA in the event of a multi-destination trip?

Suppose an employee travels to several destinations during a single vacation. In that case, the exemption will only be used for those travel costs acceptable from the origin point to the farthest location during the holiday using the shortest possible route.

Eligibility to Claim for LTA

  • To be eligible for LTA benefits, you must also meet certain requirements.
  • One can claim an LTA only on the original cost of travel. Under LTA, all modes of transportation, including road, rail, and air, are claimable. However, to receive the leave travel allowance, proper evidence of expense is mandatory.
  • As stated above, just travel expenses get covered under LTA. Food, lodging, and other similar costs, except travel, are not authorized.
  • Leave Travel Allowance is only applicable on domestic travel expenditures. One cannot claim LTA for expenses made during the employee's foreign travel (if either).
  • An individual can travel with family or by himself if he intends to claim the LTA benefits. However, a family cannot travel without the employee. An employee's presence is a prerequisite to the LTA. to make it clear. The family includes spouses, parents, children, brothers, and sisters, provided they are financially dependent on the employee. Also, such an exemption doesn't allow for more than two children of an employee born after October 1, 1998. Children born before October 1, 1998, are not subject to any restrictions. Moreover, this restriction does not apply in situations of multiple births the second time after having one kid.
  • The LTA can only be claimed once every four years for two travels. The government establishes the block years for LTA purposes. The current eligibility period for claiming LTA is from 2018 to 2021. The most recent block occurred from 2014-17. Since one can get an LTA if the employee is on leave from work for travel reasons, that period would be regarded as "leave" for the employee.

Several companies fully adhere to the language of the income tax provision. Employees may only claim LTA if they apply for leaves and travel within that period. However, those companies do not encourage facilitating LTA claims for traveling during public holidays or weekends.

Can I carry forward an unclaimed LTA from one block year to the next?

When discussing the government-established block years, people frequently ask this question, which we will address for you all. Suppose a person doesn't utilize their exemption throughout any block on either one or even both times. In that case, their exemption could be rolled over to the next block or used in the calendar year after that block underneath the carry-over concession regulations. The employee can receive LTA tax reductions on three trips taken in the current fiscal year.

You can employ the provision of carry-over concession if you claim for LTA exemption during the first calendar year of the next block.

How much can be claimed under LTA?

The money claimed under the LTA depends on your CTC. You cannot just go and buy the priciest tickets as your company will compensate you. Travel expenses get excluded under certain situations, subject to the actual amount spent by you. The conditions in different situations comprise:

When you travel by air:

The fare of the economy class of the national carrier (Air India) by the shortest route or the actual cost incurred, whichever happens, to be less shall be claimed for the tax exemption.

When you travel by train:

The employees are eligible for an air-conditioned first-class ticket. Suppose there is no such recognized public transportation system running on that route. In that case, you can claim a fare similar to an air-conditioned first-class fee for the distance between your origin and the destination via the shortest train route.

If traveling through other modes:

The origin and destination are often not connected by train or even by plane, and another form of transportation must complete the journey. In such a situation, the LTA tax benefit will be available if and only when the following conditions are met:

  • In the case of a recognized mode of transport, the exemption will be the lowest of first or deluxe class fare by the quickest route or the total price paid.
  • In case of non recognized mode of transport, the exemption shall be equal to the lesser of the air-conditioned first class train price via the shortest route (if the travel was made by rail) or the actual amount paid.

Although the income tax department's standards are evident, the accounts departments of other organizations may follow their own set of principles. As a result, before claiming any such exemption, it's best to seek clarification ahead of time. Gotaxfile can help you with all your tax compliances. GoTaxfile is a digital accounting firm, and our services are frequently combined with accounting and finance to provide comprehensive solutions. We believe in transparency, which is something that sets us apart.

Our tax compliance and advising methods help firms manage their tax compliance responsibilities while achieving deadlines. We are not only dealing with numbers; our passion is to employ innovative technology. It enhances and accelerates the operations, empowering entrepreneurs in concentrating on their firm goals.

Get in touch with us now!
DG Gupta
DG Gupta, CA, CS

Sep 17, 2021 16:13

Need some Help?

We know trying a new service can be scary, that's why we want to make this 100% risk-free for you and your company

Order Now Ask Tax Mentor

GoTaxfile is trading name operated by TaxTrolley Fintech Pvt. Ltd. in India. Learn more about org. under terms & privacy policy.
India Co. Reg. 132121 / UK Co. 10827411
UK GDPR ICO Registration ZA787002, India GSTIN 09AAHCT9946J1ZI