Leave Travel Allowance (LTA) is a type of allowance which is given to an employee by his employer to cover his travel expenses when he is on leave from work. Sometimes it is also known as Leave Travel Concession (LTC). LTA is exempt from tax u/s 10(5) of Income Tax Act, 1961. Only individuals whose employers offer leave travel allowance (LTA) can claim it. You would have to take leave and actually travel to be able to claim the exemption. The exemption must be claimed by submitting proof of your travel to your employer; you cannot claim it directly in your income tax return.
LTA covers journeys made by any mode–air, rail or road. You can claim up to economy fare to the destination for national carriers (in case of air travel) and AC first class rail fare (for rail travel).
Some employers may offer LTA as a reimbursement. In such cases the tax exemption is available only on the permissible fare amount. While the entire amount is reimbursed, the payment made to you in excess of the exemption allowed, is taxed like salary. When LTA is fixed as an allowance, the exemption is allowed based on the permissible fare, while the rest is taxed like salary. For example if your LTA is Rs 50,000, and your actual fare expenses are Rs 28,000 for four members of your family, but the economy class air fare is Rs 20,000, the balance Rs 30,000 will be taxed as salary.
The claim must be made for the fare of the shortest distance to the destination, even though you may have made detours and stops in between. Where the destination is not covered by rail or air, first class fare of public transport such as a bus may be claimed. The tax benefit applies only to travel fare, not for connecting taxis or hotel expenses.
You are allowed to claim exemption for yourself, your spouse, two children, dependent parents and dependent siblings.
LTA can be claimed for maximum of two trips in a block of four years. These blocks are not determined by your employment date, the government fixes them. The current block of 2014-2017 and expires on 31st December 2017.
As of now, LTA can only be claimed for trips made within India & overseas travel is not allowed for exemption.
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Sabyasachi Paul has been associated with equity research and advisory on equity markets in India for over 9 years & currently heads the equity research desk of Eastern Financiers Ltd, Kolkata.He also manages a portfolio on the online platform Kristal. Find link to the strategy named ‘The Tortoise’