Introduction

Managing the tax liability by accounting for all the possible incomes and expenses is a crucial annual task for every individual. One needs to account for different activities to reduce the potential tax burden. India is home to nearly 0.12 billion salaried people as of FY 2023. 

To cater to such a large population, there are many provisions for the salaried class in the overall taxation system, such as house rent allowance and leave travel allowance. They help lower the taxable income and further tax incidence. These provisions help individuals save a significant chunk of their income. Let’s understand one such leave travel allowance or LTA exemption, which can help in income management. 

Leave Travel Allowance (LTA)

Every business has its own set of rules and regulations, their leave norms and requirements may also differ from company to company. However, companies fulfilling the required norms allow certain allowances for the travel expenses of their employees along with their families. 

The conditions regarding mode of transport, members considered for this allowance and frequency of travel are laid under section 10 (5) of the Income Tax Act, 1961. Salaried individuals can take the benefit of this allowance. Usually, this LTA is included in the total Cost to Company (CTC) of an employee. He/She can claim LTA tax exemption while calculating the overall tax liability. Let’s understand its conditions in detail.

Eligibility of LTA 

Individuals can get LTA exemption only after fulfilling the following conditions:

• It is available only for solo travel or travel with close family members. The scope of this term ‘family members’ includes spouse, children, dependent parents or siblings. 
• One can get an allowance for only two travel trips within four financial years. Moreover, one cannot claim more than one allowance in a financial year. The 
• This travel must be within Indian territory.
• The allowance criteria would change based on the transport mode – Public and Non-Public modes.
• Allowance after the retirement from services would also be analysed based on the given criteria.

Mode of Transport 

The fare of travelling that can be accounted for while claiming the LTA tax exemption differs across the varied modes of transport:

1. If an individual is travelling through public air transport, the lesser amount of actual fare and the economy ticket fare of the shortest route to the destination by national airlines would be paid.
2. If the mode of transport is railway, the lesser amount of actual fare or 1st class air-conditioned ticket fare, will be paid in the allowance.
3. If a railway connection is unavailable and the journey is through public transport, the lower actual fare and deluxe bus fare would be considered.
4. If public transport is also not available, the employee will be paid the lower between actual ticket fare and 1st class rail ticket fare.

Payment as LTA

Based on the defined criteria of a family member, the allowance under LTA would be restricted to ₹36,000 per person or one-third of the specified claim expense. This expense should be for that employee’s travel remaining in the 4-year block. The employee should have a presentable and valid proof of payment and tax invoice for claim acceptance and LTA tax exemption.

Leave Travel Concession (LTC)

Similar to the provision of LTA exemption for private sector employees, the government pays for the employee’s leaves through the process of leave travel concession (LTC). However, it is accompanied by certain criteria as follows:

• This facility is only for personnel appointed under the union or state government for full-time work. They can’t be daily-wage workers or armed force members.
• This concession is specifically for travel to your hometown or any other place in India. Hometown should be indicated beforehand and cannot be changed more than once.
• Employees can take two travel concessions to their hometown in the block of 2 years (1 per year) or one of these concessions and take another concession for travelling anywhere in India.
• Current 2-year block: 2022-24 and 2023-25. Current 4-year block: 2022-25.
• The definition of family members is similar to LTA exemption norms.
• Apart from payment norms decided by the government, promotional offers for particular destinations may also be applicable.

Final Thoughts

Salaried individuals may have a single source of income in the form of their salary. However, they can potentially manage their expenses by availing the benefits like LTA exemption. It allows them to reimburse their travelling costs and claim the exemption of this income before calculating their taxable income. Employees should consider the given conditions before planning their travel. Moreover, government employees can claim LTC similar to the LTA tax exemption.

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FAQs

1. Which are expenses covered in LTA?

Individuals can claim only the actual travel cost through varied modes of transportation. These can be for employees and their close family members and only for the travels to the destination inside that national territory of India. Moreover, employees should check the details with their employer before planning their journeys.

2. Can I claim LTA for two trips a year?

In one financial year, an individual can claim LTA only once a year. The block of four consecutive financial years is considered, and an employee can claim only two travels in this block of four years. Moreover, it would cover the expenses only for the employee and his/her close family members.

3. What is a leave travel concession?

It is similar to LTA in many ways but is mainly offered by the government to its employees. Moreover, it prescribed certain conditions, such as discounts on specific locations or promotions as per government policies. LTC is exempted from tax.

4. Who is eligible for section 10 (5) exemption?

Usually, the employees and their close family members are considered for LTA. The definition of family members has a scope of only the employee’s spouse, children and dependent parents or siblings. Other related members or spouse’s family.

5. What is the difference between LTA and LTC?

The main difference between LTA and LTC is the employer and its application. Usually, LTA is provided by the private employer, while the LTC is provided by the government employer. LTC is totally tax-free and LTA can potentially be claimed for tax exemption after adhering to certain rules.