How to claim LTA Tax exemption

by Teamborrowtree

Income tax exemption on leave travel allowance (LTA) can be availed by the salaried class on employee’s actual domestic travel expenses during his or her leave across India. Please follow the demonstration to understand it better. Those employees who are eligible for Leave Travel Allowance (LTA), which is part of their cost-to-company (CTC), can claim reimbursement of expenses incurred on travel. Subject to certain limits and conditions, this reimbursement is not included in one’s taxable income. The LTA tax break can be claimed for travel of self and family members for journeys undertaken within India. LTA cannot be claimed every year and you may not be able to claim exemption on the full amount. Though LTA is a part of your salary package but under section 10(5) of The Income Tax Act 1961, it will not be treated as tax-free income every year.

The actual expenses incurred on air, rail and bus fares are only permissible to avail non-taxable reimbursement of travel costs. There are some factors like local conveyance, sightseeing, etc. that qualifies for the tax break, but these are not available every year. It is available for 2 journeys in a block of 4 years. For calendar year 2018-21, the block is applicable for the current period. The LTA amount for which tax break can be claimed in case of air travel is lower of the economy class fare of the national carrier by the actual amount spent on fare or the shortest route, whichever is less. The LTA amount eligible for tax break here is the lower of the air-conditioned first class fare by the shortest route or the actual amount spent. The journey carried out by any other mode, such as a private taxi, and the place of origin and destination are connected by rail will fall under same rule.

The journey has to be taken upon by some other mode of transport sometimes, as the place of origin and destination are not connected by rail or even by air. In such a case, the LTA tax break will be available if:

(a) Recognized existence of public transport.

It is proven fact that the tax exemption is lower of first class or deluxe class fare by the shortest route or the actual amount spent on fare.

(b) Absence of recognized public transport.

In case of air-conditioned first class rail fare by the shortest route, the exemption will be lower.

The employee has to furnish documentary evidence of the travel to the employer to avail the tax break. The LTA amount gets paid as part of the employee’s salary after tax deduction as per the applicable income slab in case you don’t travel at all or you don’t submit the travel bills. The LTA tax break is in the nature of a reimbursement which is not taxed; therefore, it is with respect to the actual expenditure on fare. Therefore, no tax break is available if no journey is performed.

The actual expenditure on the fare decides LTA exemption that is, if no journey is undertaken, then no exemption is available. No exemption is allowed beyond travel costs.
In case of Air Travel, amount of exemption cannot exceed the economy class fare of Air India on the route.
In case of train journey, amount of exemption can be availed up to AC first class rail fare.
If you travel by other means of transport, then say, an amount equal to the AC first class rail fare is allowed as exemption.
For LTA calculation of the fares of spouse, kids, dependent parents and siblings are also considered. The exemption is however limited to only two children born after October 1, 1998.

You can carry over one journey to the new block that began from 2018 If you missed out on claiming two tax exemptions during the last block of 2014-17. You can get a maximum of three tax exemptions in a block of four years on LTA in this way. According to Income Tax rules, carry forward is allowed only you make a claim in the first year of the block.

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