Leave Travel Allowance - Exemption

Leave Travel Allowance (LTA) is a component of an employee's salary package that is meant to cover the cost of travel during their leave period. The taxability of LTA in India is a topic of significant interest for both employers and employees. In this article, we will take a closer look at the taxability of LTA in India.

What is LTA?

LTA is a special allowance that is granted to employees to cover the cost of travel during their leave period. It is a part of an employee's salary package and is typically paid out on an annual basis. The amount of LTA that an employee can claim depends on their salary and their employer's policy.

Taxability of LTA.

LTA is exempt upto certain limits and on satisfaction of certain conditions.

Sl No	Travel	​Exemption limit
1	Travel by AIR	​ (i) Actual Expense (ii) Economy class fare(Air India) Whichever is lower
2	​Place of journey and destination are connected by rail	(i) Actual Expense (ii) 1st class Railway A/c fare Whichever is lower
3	​Place of journey and destination are not connected by rail but Recognised transport facility is available	(i) Actual expense (ii) Deluxe class bus fare Whichever is lower
4	​Place of journey and destination are not connected by rail and Recognised transport facility is not available	(i) Actual expense (ii) 1st class railway fare of similar distance Whichever is lower

LTC exemption is available for the travel of employee, his spouse, children* & dependent relative – (Mother, Father, Brother, Sister)

*Exemption of LTC is available only for 2 children born on or after 1/10/1998.

i. 1st time = 1 child & 2nd time = twins, then exemption is allowed for 3 children.

ii. 1st time = 2 child & 2nd time = 1 child, then exemption is allowed for 2 children.

According to the Income Tax Act, an employee can claim a tax exemption on LTA twice in a block of four years. The current block is from 2023 to 2026. If an employee does not claim LTA in a particular year, they can carry it forward to the next year, but only for one year. In other words, LTA can be claimed for a maximum of two years in a block of four years.

To claim the tax exemption, the employee must provide proof of travel expenses. The exemption is allowed only on the actual travel expenses incurred, and not on the entire LTA amount. The exemption is also limited to the travel expenses incurred within India, and cannot be claimed for expenses incurred outside the country.

To claim the exemption, an employee must submit travel bills to their employer. These bills should include details such as the mode of travel, the destination, and the amount spent. If an employee is unable to provide proof of travel expenses, the LTA will be added to their taxable income, and they will be required to pay taxes on it.

In case an employer provides LTA but the employee does not claim it, the employer will be required to pay taxes on it. If an employer provides LTA but the employee is unable to claim the tax exemption due to a lack of travel bills, the employer will be required to deduct taxes on the entire LTA amount.

Conclusion

LTA is an important component of an employee's salary package, and it is important to understand its taxability in India. Employees can claim a tax exemption on LTA twice in a block of four years, provided they provide proof of travel expenses. The exemption is limited to travel expenses incurred within India, and cannot be claimed for expenses incurred outside the country. Employers must also be aware of their obligations with respect to LTA and ensure that they deduct taxes or pay taxes on LTA amounts, as required by law.