Understanding Leave Travel Allowance (LTA) in India: Rules, Exemptions, and Claim Process
Leave Travel Allowance (LTA) is a salary component in India that helps employees cover domestic vacation travel costs, offering tax exemptions under specific conditions. To qualify, individuals must travel within India for themselves and their family, with exemptions limited to actual travel fares for approved modes of transport. The benefit is tied to a four-year 'block year' system, allowing two claims per block, with one potential carryover. LTA is exclusively available under the old tax regime.
Leave Travel Allowance (LTA), also known as Leave Travel Concession (LTC), is a component of an employee's salary designed to offset domestic vacation expenses. This allowance can be eligible for tax exemption under specific conditions.
Key Points:
- LTA is a reimbursement provided to employees for travel costs incurred within India.
- The concept of a block calendar year is crucial; exemptions can be claimed for two journeys within a four-year period.
- LTA exemption is available exclusively under the old tax regime.
What is Leave Travel Allowance (LTA)?
LTA is an allowance included in a salary structure to cover travel expenses to any location within India. It serves as a tax-saving instrument, with deductions permitted under Section 10(5) of the Income Tax Act.
Eligibility for LTA
Only individuals, whether residents or non-residents, are permitted to claim LTA for travel expenses incurred during a tour within India. The expenses can be claimed for the individual and their family. The definition of family for this purpose includes:
- Spouse
- Children
- Dependent siblings and parents.
Expenses Covered Under LTA Exemption
The exemption specifically covers travel fares. The eligible amount varies based on the mode of transport:
- Air Travel: The economy class fare for any airline is eligible for exemption.
- Rail Travel: First-class air-conditioned (A/C) rail fare qualifies for exemption.
- Other Recognized Modes of Transport: If railways are not available for the travel route, the first-class A/C bus fare of a recognized transport service can be claimed.
- No Recognized Mode of Transport: In areas without recognized transport, the first-class A/C rail fare for the equivalent distance can be claimed as an exemption.
It is important to note that local conveyance, sightseeing tours, food, and accommodation costs are not eligible for LTA exemption.
Exemption Limit
The exemption amount is limited to the lower of the actual travel expenses incurred or the specified fares for the mode of transport. This means the exemption is the lesser of:
- The amount designated by the employer as Leave Travel Concession.
- The fare of an economy class flight, first-class A/C rail, or first-class deluxe bus, as applicable.
LTA can be claimed for a maximum of two children. However, if twins are born after the first child, this restriction does not apply, allowing exemption for all three children. The journey must be undertaken via the shortest possible route to the destination.
The Concept of Block Year
The LTA exemption is permissible for only two journeys undertaken within a specific block of four calendar years.
- A block year is a four-year period defined by the government for LTA exemption, distinct from a financial year.
- The current applicable block period is 2022-2025.
Carryover of Unclaimed LTA
If an employee does not utilize one or both of the permissible LTA exemptions within a four-year block, one unavailed exemption can be carried over to the subsequent block. This carried-forward exemption must be claimed within the first calendar year of the immediately succeeding block.
For clarity, consider these examples:
Scenario 1: Carryover exemption claimed in the first year of the subsequent block
| Journey Month | Block Year 2018-21 | Block Year 2022-25 |
|---|---|---|
| April 2019 | Exemption claimed | Not applicable |
| March 2021 | Exemption not claimed | Carried forward to next block |
| May 2022 | No journey undertaken | The carried-forward exemption can be claimed in FY 2022-23 |
Scenario 2: Carryover exemption not claimed in the first year of the subsequent block
| Journey Month | Block Year 2018-21 | Block Year 2022-25 |
|---|---|---|
| April 2019 | Exemption claimed | Not applicable |
| June 2019 | Exemption claimed | Not applicable |
| March 2021 | Exemption not claimed | Carried forward |
| January 2022 | No journey undertaken | Not applicable |
| January 2023 | No journey undertaken | Exemption for the March 2021 journey cannot be claimed, as the first year of the succeeding block has passed |
How to Claim LTA
The process for claiming LTA typically depends on the employer's specific policies. Employers usually announce a deadline for LTA claims and may request proof of travel, such as tickets, boarding passes, or invoices from travel agents, along with a mandatory declaration. Although employers are not legally obligated to collect travel proof, it is prudent for employees to retain copies for their records and to submit them to the employer if required by company policy or tax authorities upon request.
Leave Travel Allowance Under the New Tax Regime
Several deductions and exemptions are restricted under the new tax regime, and LTA is among them. Leave Travel Allowance is not available for taxpayers opting for the new tax regime. To claim LTA exemption, individuals must choose the old tax regime and satisfy the necessary criteria.
Multi-Destination Journey
According to the tax provisions, LTA exemption calculation is based solely on the shortest route from the origin to the destination. Therefore, if a journey involves multiple destinations, only the shortest distance from the starting point to the farthest destination will be considered for exemption. The entire cost of multi-destination travel cannot be claimed.
LTA Exemption for Travel During Holidays
Some organizations adhere strictly to the income tax provisions, allowing employees to claim LTA only if they apply for leaves and travel during that period. Such companies may decline LTA claims for travel undertaken solely on official holidays or weekends.