What is Leave Travel Allowance (LTA)?

Introduction

Leave Travel Allowance (LTA full form) is a provision under the Income Tax Act, 1961 that allows salaried employees to claim tax exemption on expenses incurred for domestic travel. This exemption is commonly used by employers to structure the Cost to the Company (CTC) of employees in a tax-efficient manner. The LTA exemption can be claimed on air, rail, or road transport fares for the employee and their family members, and is limited to two journeys taken in a block of four calendar years. This valuable benefit not only helps in reducing taxable income but also provides an opportunity for employees to take a break from work and spend time with their families.

What Is Leave Travel Allowance (LTA)?

Leave Travel Allowance (LTA), also known as Leave Travel Concession (LTC), is a provision under the Income Tax Act, 1961, that allows salaried employees to claim tax exemption on expenses incurred for domestic travel. Section 10(5) of the Income Tax Act, 1961, provides tax exemptions for LTA. The LTA exemption applies to travel expenses incurred by the employee and their family members within India, such as air, rail, or road transport fares, hotel accommodation charges, and sightseeing expenses.

Under this provision, salaried employees can claim a tax exemption for the expenses incurred during two journeys taken in a block of four calendar years. This means that employees can carry forward the unclaimed LTA exemption to the next block of four calendar years. However, the exemption is only applicable if the employee has availed of the leave for the purpose of travel.

To claim the LTA exemption, employees need to submit proof of travel expenses, such as travel bills, boarding passes, and hotel bills, to their employers. The employer will then reimburse the expenses, and the employee can claim a tax exemption for the same.

LTA is a valuable benefit that employers can use to structure their employees' compensation in a tax-efficient manner. Additionally, it is an essential provision for salaried employees, as it helps in reducing their taxable income and provides a valuable opportunity to travel domestically.
 

Eligibility Criteria For Claiming LTA

To claim Leave Travel Allowance (LTA) exemption under the Income Tax Act, 1961, salaried employees must meet certain eligibility criteria. These criteria include:

●    The employee must be a salaried individual and must have incurred expenses on travel.
●    The travel must be within India and cannot be used for international travel.
●    The LTA can only be claimed if the employee has taken leave from work for the purpose of travel.
●    The exemption can be claimed for up to two journeys undertaken in a block of four calendar years.
●    The employee must provide proof of travel expenses such as bills, boarding passes, and hotel bills, to their employer.
●    The LTA exemption can be claimed only if it is utilized by the employee within the specified time frame, failing which the exemption will lapse.
 

Procedure To Claim LTA

To claim Leave Travel Allowance exemption, salaried employees must follow certain procedures. These include:

1.    Submitting a claim: The employee must submit a claim to their employer, stating the amount of LTA exemption they are eligible for, along with the proof of travel expenses.

2.    Providing necessary documentation: The employee must provide the necessary documentation such as bills, boarding passes, and hotel bills to their employer to claim the LTA exemption.

3.    Utilizing the exemption: The LTA exemption can only be claimed if the employee has utilized it for the purpose of travel within the specified time frame.

4.    Proof of leave: The employee must also provide proof of leave taken from work for the purpose of travel to claim the LTA exemption.

5.    Time limit: The LTA exemption can be claimed up to two times in a block of four calendar years, and any unused exemption cannot be carried forward.
 

Documents Required For Claiming LTA

In order to claim LTA benefits, salaried employees need to provide certain documents to their employer. These documents include:

1.    Travel tickets: Employees need to submit travel tickets (air, rail or road) as proof of travel.

2.    Proof of expenses: Employees must exhibit documentation of trip costs such as hotel bills, taxi receipts, and boarding passes.

3.    Leave approval: Employees are mandated to provide proof of leave taken from work for the purpose of travel.

4.    LTA claim form: Employees must fill out an LTA claim form provided by their employer, which details the amount of exemption being claimed.

5.    Travel itinerary: Employees must provide a detailed travel itinerary that outlines the places visited and the duration of the travel.

6.    PAN card: Employees are required to give their PAN card details to their employer.

7.    Bank account details: Lastly, providing bank account details to the employer is the most important part of receiving reimbursement for expenses

It is important for salaried employees to keep these documents safe and submit them to their employer in a timely manner to ensure a smooth process for claiming LTA benefits. 
 

Conditions For Claiming LTA

To receive benefits of Leave Travel Allowance, salaried employees must fulfill certain conditions. These include:

●    The exemption can only be claimed for travel within India, and not for international travel.
●    The exemption can be claimed for travel by air, rail, or road.
●    The employee must have taken leave from work for the purpose of travel to claim the LTA exemption.
●    The employee must provide proof of travel in the form of original travel tickets, boarding passes, and hotel bills.
●    The LTA exemption can be claimed up to two times in a block of four calendar years. If an exemption is not claimed in a particular block, it cannot be carried forward to the next block.
●    The employer may have additional rules for claiming LTA exemption, which must be adhered to.

It is important for salaried employees to fulfill these conditions to be eligible for LTA exemption. By doing so, they can enjoy the benefits of this tax exemption and reduce their taxable income under the Income Tax Act, 1961.
 

Calculation Of Leave Travel Allowance

The calculation of Leave Travel Allowance depends on various factors, such as the employee's salary, travel expenses, and tax bracket. The basic exemption is limited to the fare of the economy class of the national carrier by the shortest route to the destination. The exemption can also be claimed for the cost of travel of the employee and their family members.

The following steps can be followed for the calculation of LTA:

●    Determine the employee's LTA eligibility based on the conditions outlined in the employer's policy and the Income Tax Act, 1961.

●    Calculate the cost of travel for the employee and their family members, if applicable.

●    Calculate the maximum LTA exemption available based on the fare of the economy class of the national carrier by the shortest route to the destination.

●    If the cost of travel is less than the maximum exemption available, the LTA exemption can be claimed for the actual cost of travel.

●    If the cost of travel is more than the maximum exemption available, the LTA exemption can be claimed only up to the maximum exemption limit. The employee can claim the excess as taxable income.

●    Deduct the LTA exemption amount from the taxable income of the employee.

It is important to keep proper documentation of travel expenses and proof of travel to claim LTA exemption. By following these steps, employees can accurately calculate their LTA exemption and reduce their taxable income under the Income Tax Act, 1961.

LTA Restrictions

While Leave Travel Allowance is a beneficial tax exemption for salaried employees, there are certain restrictions that need to be kept in mind when claiming the exemption. Here are some of the restrictions associated with LTA:

1.    Only domestic travel is allowed: LTA can only be claimed for domestic travel within India. Travel expenses incurred for international travel are not eligible for LTA exemption.

2.    Maximum frequency of claims: LTA can be claimed only twice in a block of four calendar years. The current block is the calendar years 2018-2021.

3.    Proof of travel: It is essential to maintain proof of travel to claim LTA exemption. This includes travel tickets, boarding passes, and other relevant documents.

4.    Exemption only on actual travel expenses: LTA exemption can be claimed only on actual travel expenses incurred. Any expenses incurred other than travel expenses, such as hotel accommodation or food, are not eligible for LTA exemption.

5.    LTA cannot be claimed on cash payments: Cash payments made for travel expenses are not eligible for LTA exemption. The payment must be made through a bank account, cheque, or any other digital mode of payment.

It is important to understand these restrictions and comply with the rules and regulations of the Income Tax Act, 1961 to claim LTA exemption correctly.

Benefits Of Leave Travel Allowance

Leave Travel Allowance is a beneficial tax exemption available to salaried employees in India. Here are some of the benefits of LTA:

1.    Tax exemption: LTA is a tax exemption on travel expenses incurred by the employee for a vacation or sightseeing trip with family members. This exemption helps in reducing the taxable income of the employee.

2.    Encourages travel and promotes tourism: LTA encourages employees to take a break from work and travel with their families. It promotes tourism and contributes to the growth of the travel industry.

3.    Helps in cost optimization: Since LTA is a tax exemption on travel expenses, it helps in reducing the overall cost of the trip for the employee. This is beneficial for both the employee and the employer.

4.    Supports work-life balance: LTA allows employees to take time off work and spend quality time with their families. This helps in maintaining a healthy work-life balance and improves employee morale.

5.    Flexibility in claiming the exemption: Employees can claim LTA exemption for travel expenses incurred by them or their family members. This provides flexibility and convenience to the employees in planning their vacations.
 

LTA Example

Here are two examples of how LTA can be utilized:

1.    Suppose an employee has an LTA component of Rs. 50,000 as part of their CTC. The employee plans a trip to Kerala with their family and incurs travel expenses of Rs. 40,000. The employee can claim the LTA exemption on this amount, and the remaining Rs. 10,000 will be taxed as per the income tax slab of the employee.

2.    Another employee has an LTA component of Rs. 1,00,000 as part of their CTC. The employee decides to take two vacations in a year, one to Goa and the other to Andaman and Nicobar Islands, and incurs travel expenses of Rs. 60,000 and Rs. 40,000, respectively. The employee can claim the LTA exemption on both trips separately, and the remaining amount will be taxed as per the income tax slab of the employee.

Note: These examples are for illustration purposes only, and the actual tax exemption amount and calculation may vary based on the individual's salary, tax slab, and LTA component in the CTC.
 

Conclusion

In conclusion, a Leave Travel Allowance is a popular tax-saving component of an employee's salary package. It provides tax exemption on expenses incurred on domestic travel by an employee and their family. However, there are specific eligibility criteria and conditions that need to be met to claim this exemption. The amount of exemption also depends on the employee's salary, LTA component in the CTC, and the travel expenses incurred.

It is crucial for employees to understand the eligibility criteria, conditions, and procedure for claiming LTA to avoid any confusion or discrepancies. Maintaining proper documentation and adhering to the rules and restrictions related to LTA can ensure a hassle-free process of claiming tax exemption.

In summary, LTA is a valuable tax-saving tool for employees, and employers can use it to design a comprehensive and attractive salary package. Understanding the rules and regulations related to LTA can ensure that both employees and employers benefit from this tax exemption.