The financial year is ending soon, and most taxpayers are finding ways to save income tax. Among the many options available, Leave Travel Allowance (LTA) is one of the ways to save tax for salaried employees. It also comes with the added benefit of spending quality time with family, and at the same time reduces the burden of tax liability up to a certain limit. There are many terms & conditions to claim LTA and hence one needs to plan their travel accordingly for the purpose of claiming exemption successfully. Here's how you can enjoy a tax-free vacation with Leave Travel Allowance (LTA).
What is Leave Travel Allowance (LTA)?
One of the exemptions under the Income Tax Act, 1961 which is commonly used by many employers is Leave Travel Allowance (LTA). Leave Travel Allowance is a tax exemption for an allowance paid to the employee by the employer for travel expenses incurred while he or she is on leave. The amount received as LTA is tax-free up to a certain limit under Section 10(5) of the Income Tax Act, 1961. Due to the current pandemic where people were confined to their homes as the lockdown was imposed across countries, the Government of India came out with the Leave Travel Concession (LTC) cash voucher scheme in 2020. In order to allow people to claim tax benefits, employees can claim a tax deduction on LTC by spending the money on buying goods and services instead of submitting travel bills. The scheme was initially launched for government sector employees but was later extended to non-government employees as well.
Who can avail LTA exemption?
An employee travelling while on leave from work
Who is eligible?
The employer makes a decision on the amount to be allocated for LTA to an employee. To claim an LTA, an employee has to travel within the block year (within India). The current block year is 2022 to 2025. It can be a round trip with family members or a solo trip.
The claimant needs to cover the actual journey in order to be eligible for claiming the exemption. The travel should be within the boundaries of the country. Hence, international travel is not eligible to be claimed or covered under LTA.
To be eligible for exemption, the employee or the claimant must be traveling alone or with his/her family including the spouse of the employee, children, dependent parents, siblings of the employee. LTA also covers the travel of close family members such as a spouse, brother, sister, parents, and kids provided they have taken the same journey with you. LTA exemption is given only on the actual cost of travel which is the transport fare incurred on a bus (deluxe class), airplane (economy class), or railway (first-class AC). No other expenses of travel, like sightseeing, hotel stay, expenses on food, etc., can be used for LTA exemption.
How to claim
The procedure to claim LTA normally depends on the employer. The employer announces the period and due date within which the employees can submit their proof of travel documents such as tickets (in original), invoices, boarding passes, etc. along with the necessary declaration. Upon submission of the proof, the employers will credit the LTA component in the salary and treat that as a non-taxable component.
Calculation of LTA
An employee is allowed to make an LTA claim for two journeys in a single block, which comprises four years. These blocks are different from financial years declared by the Income Tax Department. The employee is eligible to claim for two journeys in these block years. The current block years are 2022 to 2025. LTA exemption can only be taken for ticket or travel fare and no other expense can be included or will be eligible for LTA.
Can LTA be carried over?
If an employee has not availed of the exemption with regards to one or two journey(s) in the period of four years in block year then he/she is allowed to carry over such exemption to the next block. This is provided that he or she avails the benefit in the very first calendar year of the immediately following block. Hence, Leave Travel Allowance (LTA)/ Leave Travel Concession (LTC) is an important salary component for an employee which helps him/her save income tax. Even though these tactics can help you save some money, do remember that this pandemic is not over yet, and travel continues to be risky and complicated in many parts of the world.
(The writer is Founder, 7Prosper, a financial planning service)