Availing tax benefit on LTA

If you are planning to go out on a holiday next summer, you can benefit from the leave travel allowance (LTA) paid by your employer and make your holiday more enjoyable. The LTA component of your salary is paid by your employer so that the expenses on travelling with your family are taken care of. The LTA may be a fixed amount per month included as perquisite in the salary, or it can be in the form of lump sum reimbursement of expenses incurred on travel to and from a destination in India, subject to a maximum limit permissible in a year as specified in the employment contract.

The amount paid as LTA is exempt from tax. The terms of exemption are specified in Section 10(5), Rule 2B of the Income Tax Act 1961. As per the regulations, tax exemption on LTA is available for two children of the employee born after October 1, 1998. A family under the LTA regulations includes spouse, children, parents and employee’s dependent siblings. The tax exemption is available for two travels within a block of four years. If the employee does not avail the exemption within a block, the exemption is allowed to be carried over to the next block. Currently, the block of four years is 2014-2017.

An employee can claim tax exemption on travel by air, railway or any recognised public transport system. In the case of air travel, only economy air fare by the shortest route or the actual amount spent, whichever is less, can be claimed as tax emption. As for travel by railway, AC first class rail fare by the shortest route or the actual amount spent can be claimed as tax exemption. If the place of destination is not connected fully or partially to the place of origin, fare spent on travel by public transport system would be eligible for tax exemption.

Although there is no maximum limit on the amount that can be claimed as LTA under the Income Tax Act, the LTA component has to be a reasonable percentage of the total salary.

In case an employee does not avail LTA during the block period, the same can be carried forward to the next block period. However, if the employee does not wish to carry forward the LTA to the next block period, the employer will pay the amount of LTA after deducting the tax. If part of the LTA remains unspent during the block period, the employer will pay the unspent amount to the employee after deducting tax on it.