How Employees can make full use of their Leave Travel Allowance
In many organisations, the year-end holidays are a norm. In others, the employees apply for long leave in advance, well ahead of their travel schedule. And if the travel costs are reimbursed by the employer, nothing like it.
Employees who are eligible for Leave Travel Allowance (LTA), as part of their Cost-to-Company (CTC), can claim reimbursement of expenses incurred on travel. This reimbursement is not included in taxable income subject to certain limits and conditions. LTA tax break can be claimed for travel of self and family members for journeys undertaken only within India.
Family includes spouse and children, whether dependent or not, and parents, brothers, sisters who are fully or mainly dependent on him. LTA tax break is not available for more than 2 children if born after 01.10.1998. This restriction does not apply to children born before 01.10.1998.
The non-taxable reimbursement of travel costs is limited to the actual expenses incurred on air, rail and bus fares only. No other expenses, like local conveyance, sightseeing, etc., qualify for the tax break, which is not available every year. It is available for 2 journeys in a block of 4 years. The block applicable for the current period is calendar year 2014-17. The previous block was calendar year 2010-2013.
The LTA amount for which tax break can be claimed in case of air travel is the lower of the economy class fare of the national carrier by the shortest route or the actual amount spent, whichever is less.
The LTA amount eligible for tax break here is the lower of the air-conditioned first class fare by the shortest route or the actual amount spent. The same rule applies to the journey undertaken by any other mode, such as a private taxi, and the place of origin and destination are connected by rail.
Other travel modes
Sometimes, the place of origin and destination are not connected by rail or even by air, and the journey has to be undertaken by some other mode of transport. In such a case, the LTA tax break will be available if:
(a) Recognised public transport exists.
The exemption will be lower of first class or deluxe class fare by the shortest route or the actual amount spent.
(b) No recognised public transport exists.
The exemption will be lower of the air-conditioned first class rail fare by the shortest route (if the journey has been undertaken by rail) or the actual amount spent.
Travelling isn’t necessarily from one place to another. One may travel to different locations on a single trip. Where the journey is performed in a circular form touching different places, the LTA tax break is limited to what is admissible for the journey from the place of origin to the farthest point reached by the shortest route.
If an employee has not availed of LTA for one or two permitted journeys in a particular block of 4 years then he is entitled to carry one journey over to the next block. In such a situation, the exemption will be available for 3 journeys in the next block.
However, to make use of this benefit, the exemption with respect to the journey has to be utilised in the first calendar year of the next block. In other words, in case of a carry over, the exemption is available with respect to 3 journeys in a block, provided the exemption with respect to at least 1 journey is claimed in the first year of the next block.
Availing LTA tax break
To avail of the tax break, the employee has to furnish documentary evidence of the travel to the employer. In case you don’t travel at all or you don’t submit the travel bills, the LTA amount gets paid as part of the employee’s salary after tax deduction as per the applicable income slab.The LTA tax break is in the nature of a reimbursement which is not taxed, therefore, it is with respect to the actual expenditure on fare. Hence, if no journey is performed, no tax break is available.
Even though the rules set by Income-tax Department are crystal clear, the accounts department of several organisations may follow their own set of guidelines. Therefore, before availing of any such exemption, it’s better to get clarity, well in advance.