Understanding taxability on your Leave Travel Allowance
06 December, 2023
To make the most out of LTA, employees should:
- Carefully plan their travel within the stipulated block years.
- Keep all travel-related documents ready for submission.
- Understand the specific policies of their employer regarding LTA claims.
- Consider alternatives like the LTC Cash Voucher Scheme under special circumstances.
In a world where travel has been influenced by global events like the pandemic, understanding the financial benefits related to travel, such as the Leave Travel Allowance (LTA), becomes crucial for salaried employees. LTA not only assists in covering travel expenses but also offers tax benefits, making it an important aspect of financial planning.
What is Leave Travel Allowance?
LTA, or leave travel concession, is an allowance included in the salary package of employees, designed to cover travel expenses incurred during leave. It forms a part of the employee's cost to the company (CTC) and is typically provided as an annual benefit. The unique aspect of LTA is its tax-exempt status under certain conditions, as outlined in Section 10(5) of the Income Tax Act, 1961. This exemption allows employees to deduct LTA from their taxable income, leading to potential tax savings.
Conditions to Avail LTA Exemption
The exemption offered by LTA is not unconditional. To utilise this benefit, the following criteria must be met:
The travel must be within the geographical boundaries of India.
The exemption is applicable only to the actual travel expenses incurred and does not cover auxiliary costs such as accommodation, food, or shopping, while the mode of travel must be bus, economy airline or train.
It covers the travel expenses of the employee and their immediate family, which includes the spouse, children, and wholly dependent parents, brothers, and sisters.
The exemption for children is limited to two surviving children born after October 1, 1998. This limitation does not apply to children born before this date or in cases of multiple births after the first child.
Valid documentary proof of travel, such as tickets and a declaration form, are essential for claiming the exemption.
LTC Cash Voucher Scheme (2023)
In response to the pandemic and to encourage economic activity, the government introduced the LTC Cash Voucher Scheme. Extended into 2023, this scheme allows employees to claim tax exemptions on certain purchases. It offers an alternative to the traditional LTA, especially beneficial during times when travel may not be possible or advisable. The scheme provides cash vouchers for the purchase of specific non-food items, subject to a GST rate of approximately 12%, thus offering a different avenue to avail tax benefits. However, employees can only buy goods and services untill March 31, 2023 (as the LTC scheme benefit is only available for the year block 2018-2021), with certain relaxations allowed.
How Often Can One Claim LTA?
The LTA exemption is available for two journeys within a block of four calendar years. The current block period is 2022-2025. It's important to note that if the exemption is not utilized within a block, it cannot be carried forward to the next one.
Who is Eligible to Claim LTA?
LTA eligibility is broad, encompassing all employees, whether in the public or private sector. There is no stipulated waiting period from the date of joining an organization to become eligible for LTA. The coverage amount and conditions, however, are determined by the employer and are typically included in the final settlement when an employee leaves the organization.
With LTA, salaried individuals have a way to reduce their travel expenses while availing of tax benefits. Proper understanding and planning are key to maximising the benefits offered by LTA. As tax laws and benefits are subject to change, staying informed about the latest developments is crucial.
* The information provided in this article is generic in nature and for informational purposes only. It is not a substitute for specific advice in your own circumstances. You are recommended to obtain specific professional advice before you take any/refrain from any action. Tax benefits are subject to changes in tax laws. Please contact your tax consultant for an exact calculation of your tax liabilities.