Taxability of Leave Travel Allowance (LTA) under Section 10(5) of Income Tax Act:
Leave Travel Allowance is one of the best tax saving tools that an employee can avail. It is a tax exemption offered by employers to their employees. Leave Travel Allowance as the name suggests is an allowance paid to the employee by the employer when the former is travelling with their family or alone. The amount paid as Leave Travel Allowance is tax free.
Section 10(5) of the Income Tax Act, 1961 with Rule 2B ensures the exemption of tax and also details the conditions subject to tax exemption. There are some rules related to the exemption of tax that is stated clearly under Section 10(5) of the Income Tax Act, 1961.
Though it is known that Leave Travel Allowance amount is exempted from tax, there are still doubts on the exemption. The exemption is restricted only to the travel cost incurred by the employee. The tax exemption is not valid for the costs incurred during the entire trip which might include expenses such as food expenses, shopping expense and other expense.The exemption is not available for more than two children of the individual born after October 01, 1998. Exemption is allowed for only two travels within a block of four years. The current block is between 2014-2017. If the individual doesn’t take advantage of the exemption within this block, they can carry it over to the next block.
Given below is a list of expenses that is exempted under Leave Travel Allowance
- Travel by air- Economic air fare by the shortest route or amount spent will be exempted depending on whichever is lesser.
- Travel by rail- A.C. first class fare by the shortest route or the amount spent on travel will be exempted depending on whichever is lesser.
- Place of origin and destination place of journey connected by rail but journey performed by other mode of transport
- Place of origin & destination not connected by rail(partly/fully) but connected by other recognised Public transport system
- Place of origin & destination not connected by rail(partly/fully) and not connected by other recognised Public transport system also
Providing Proof for LTA:
Employers usually don’t have to submit proof of travel to tax authorities while assessing travel allowance claims. Even though it is not considered mandatory for employers to collect proof of travel from the employees, they still have the right to demand documentary proof if needed. The employee is advised to keep proof of their travel such as boarding passes, flight tickets, invoice of travel agent, duty pass and other documentary proof in case the assessing officer or the employer demands for it.
Given below are the travel limitations applicable under Leave Travel Allowance.
- Leave Travel Allowance covers only domestic travel and does not cover international travel
- The mode of travel should be either air travel, railway or public mode of transport
There are certain restrictions when it comes to Leave Travel Allowance. Given below are the important restrictions applicable on Leave Travel Allowance.
- The Leave Travel Allowance is applicable only for travel expenses
- The individual can travel only with India
- The individual has to keep proof of travel as it can be required for tax auditing purposes
- The exemption under Leave Travel Allowance is not available for more than two children born after October 1, 1998
- One can claim LTA only twice in a block of four years
- If LTA isn’t claimed in a particular block, it can be carried over to the next block and used in the first year of the next block itself.
- LTA exemption offers cover for the family of the individual too. A family, under LTA, includes immediate family which is the parents, siblings, spouse, and children.
Consider an example where Mr. Anand is provided LTA of Rs.25,000 by his employer but Anand spends only Rs. 20,000 on the travel cost, then the exemption is limited to only Rs. 20,000 since the exemption is only valid for travel expenses and not other expenses such as food expense or accommodation expense.
Frequently Asked Questions about Leave Travel Allowance:
- What exactly does Leave Travel Allowance cover?
- Who does it offer cover for?
- How many times can an individual claim Leave Travel Allowance?
- Is international travel permitted under Leave Travel Allowance?
- Can Leave travel Allowance be carried forward?
Leave Travel Allowance covers only the travel expense incurred during the travel.
It covers the travel expenses incurred by the individual and their immediate family. Relatives are not considered family under Leave Travel Allowance.
One can make a claim only twice in a block of four years.
No, international travel is not covered.
LTA can be carried forward to the next block if it is not utilised for the current block.
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News About Leave Travel Allowance
Central Government Employees can now take Private Airlines to Jammu and Kashmir
According to new LTC (Leave Travel Concession) rules, Central Government employees will now be allowed to take private airlines to Jammu and Kashmir till September of this year. Earlier, the Centre’s rules stated that employees can only travel by Air India to Jammu and Kashmir, Andaman and Nicobar Islands and other north-eastern states. A special dispensation scheme later eased the rule allowing employees to take private airlines, which was permitted for a period of one year until 27th November, 2015.
According to the order from Department of Personnel and Training, this scheme has now been extended till 25th September, 2016. However, air travel with the private airline must be booked in Economy Class only. Government employees can avail tax exemption on the Leave Travel Concession availed from their employer.
1st July 2016
New Cess raises Prices of Rail, Air Travel, Eating Out Costs
New budgetary proposals that include an agricultural cess of 0.5% on all services is expected to make services such as air travel, train travel, phone usage and eating out, costlier. Now, with the addition of Krishi Kalyan Cess (KKC) of 0.5%, the total service tax would come up to 15%. On freight, parcel and AC train tickets, 0.5% of KKC on Service tax will be levied.
A 6% equalisation levy or ‘Google tax’ will also apply on one-time settlement tax scheme for disputes raised from retrospective IT Act amendments and cross border digital transactions. The Direct Tax Dispute Resolution Scheme is also expected to resolve pending cases in courts, arbitrations, tribunals under the BIPA (Bilateral Investment Protection Agreement), bringing relief to companies like Cairn and Vodafone who have been under multi-billion dollar tax liabilities since 2012.
3rd June 2016
Form 12BB introduced for Tax Rebate Claim on LTA and HRA
The income tax department has introduced Form 12BB that tax payers will have to submit to their employers in order to claim tax rebate on LTALTC (Leave Travel Allowance Concession). Salaried employees will also have to give other details like name, PAN number and address of the landlord if the total rent is more Rs.1 lakh annually.
The Central Board of Direct Taxes also increased the time line from 7 to 30 days for depositing TDS on transfer of immovable property. The deadline for filing of quarterly TDS returns has also been raised by 15 days.
5th May 2016