Understanding Leave Travel Allowance (LTA): Rules, Exemptions, and Claims

Understanding Leave Travel Allowance (LTA)

To effectively claim Leave Travel Allowance (LTA), it is essential to comprehend its defined rules and exemption guidelines.

What is Leave Travel Allowance (LTA)?

Leave Travel Allowance (LTA), also referred to as Leave Travel Concession, is an allowance provided by employers to cover travel expenses incurred by employees during holiday trips. This allowance enjoys tax exemption under Section 10(5) of the Income Tax Act, 1961.

Exemption Rules for LTA

According to the Income Tax Act, LTA can be divided into two categories:

Travel Concession for Current Employees: This includes travel concessions received by employees for themselves and their families while they are on leave.
Travel Concession for Former Employees: This encompasses travel concessions for former employees and their families after termination or post-retirement.

Definition of ‘Family’

As per the Income Tax provisions, the term ‘family’ for LTA includes:

The spouse of the individual.
Parents, primarily dependent on the individual.
Children of the individual.
Siblings, primarily dependent on the individual.

Eligibility and Calculation of LTA

To determine eligibility and calculate LTA accurately, individuals must adhere to the following rules:

Not all expenses incurred during travels qualify for LTA.
Expenses for shopping and food are not tax-exempt.
Only specific costs related to the employee's holiday trip are covered.
Proof of travel must be retained for audit purposes.
Tax exemption applies to two holiday trips within a four-year block period.
The exemption amount is based on the chosen mode of transport and the distance to the travel destination.

What are LTA Block Years?

LTA block years are defined four-year periods established by the Income Tax Department during which exemptions can be claimed twice. The block years are as follows:

BLOCK NUMBER	BLOCK PERIOD
1	1986-89
2	1990-93
3	1994-97
4	1998-01
5	2002-05
6	2006-09
7	2010-13
8	2014-17
9	2018-21

Current LTA Block Year

The current LTA block year is Block 9, covering the years 2018, 2019, 2020, and 2021.

Exempted Expenses Under LTA

The following expenses are tax-exempt under LTA:

By Air Travel: Economy class fare on national airlines based on the shortest route or actual travel expenses, whichever is less.
Travel by Train: First-class rail fare for the shortest route or actual expenses incurred, whichever is less.
In scenarios where public transport is used, the exemption also applies based on the shortest route costs.

Carry Over Concession

If an employee does not fully utilize their LTA in a block period, they can claim any remaining exemptions in the subsequent year of that block period. For instance, if Mr. Ankit claims only one LTA exemption during the 7th block (2010-2013), he can carry over that exemption to the next year (2014), which falls under Block 8.

Limitations of Leave Travel Allowance

LTA is applicable only for domestic trips; international travel is excluded.
It covers travel expenses only.
Claims can only be made for a maximum of two children, though this condition does not apply if the children were born before October 1, 1998.
In cases of multiple births, any additional child after the first will be viewed as one.

LTA Calculation Example

For Mr. Ankit, an employee of ABC Company, who travels from Delhi to Mumbai via a business-class flight at a total cost of ₹40,000, the calculation for LTA exemption would be as follows:

Economy class fare for the return trip: ₹12,000
Mr. Ankit can therefore claim only ₹12,000 as LTA exemption whereas the remaining ₹28,000 is taxable.

Vehicle Allowance and Tax Benefits

Employers often provide vehicle allowances to employees as a reward for their dedication. The tax implications of these allowances require careful consideration.

Valuation of Motor Car Usage

The vehicle allowance may cover day-to-day travel expenses, but it is partially taxable.

Vehicle Allowance Scenarios

Employer-Owned Vehicles: If an employer owns the vehicle used exclusively for official purposes, there is no taxable perquisite. However, if the vehicle is used for personal purposes, it becomes fully taxable.
Employee-Owned Vehicles: If the vehicle is owned by the employee and used exclusively for official purposes, it remains untaxed. For mixed use, certain deductions apply based on actual expenditure incurred by the employer.
Multiple Vehicles: If an employee has access to multiple cars, the primary vehicle's value will be assessed, and the others will be regarded as personal use.

Conclusion

LTA and vehicle allowances are essential components of employee remuneration packages, offering tax benefits under specific conditions. Understanding the nuances of these provisions can help employees maximize their exemptions and claims accurately.