Leave Travel Assistance / Allowance / Concession (LTA)

Leave Travel Concession / Assistance / Allowance (LTA) is generally paid as a part of salary to employee for his travel on his planned leaves with / without his family. The amount paid by the employer to employee is exempt from tax subjected to conditions which is discussed as below.

Sec 10(5) of the Income tax act read with rule 2B lays down the conditions for the exemption of LTA to be claimed by the employee while paying his taxes or filing income tax returns. It is worth to be noted that the employer and employee are in no obligation to determine the amount of payment to be made to employee as per Sec 10(5). The said section is only applicable to ascertain the exemption the employee can claim while computing his taxable income i.e. in other words the amount paid for the entire trip can be mutually negotiated by the employer and employee.

Exemption allowed cases
1)    LTA received from employer or former employer.
2)    Employee must proceed on leave
3)    Destination shall be any place in India.
4)    Only Travel Expenses from place of origin to place of destination.
5)    Individuals that can accompany are Spouse, first two surviving children, Parents of the employee if wholly or mainly dependent on employee and brothers and sisters if wholly or mainly dependent on employee.
Exemption not allowed cases
1)    LTA received from other than employer.
2)    Employee proceed to destination without leave or only employee’s family proceeds to the destination.
3)    Destination is outside India.
4)    Lodging and boarding, local conveyance and other expenses
5)    Individuals such as parents of spouse though wholly or mainly dependent on employee.

Apart from the cases discussed above there are few additional condition that needs to be considered for claiming the exemption which is discussed hereafter.

Though as discussed above even if employer pays a higher amount than the travel fare the exemption is limited to i) if by air then amount charged by a national carrier (i.e. Indian Airlines or Air India) for the shortest route from origin place to destination. ii) if by rail then Air-conditioned first class rail fare by the shortest route to the place of destination. iii) if the destination is not connected via air or rail then first class or deluxe class fare of a recognised public transport system, also if no public transport system in place then an amount equivalent to air conditioned first class rail fare for the shortest distance between origin and destination as if the journey was conducted by rail. Also point to consider if the employer has paid a lower amount than the limits as discussed above then such lower amount will be exempted from tax.

Additional condition to be remembered while calculating the exemption is the employee can claim LTA two times in a block of four years. Also employee can carry forward one of his eligible LTA from lapsing from current block year to next block year only if the travel is made and LTA is claimed in the first year of the next block year. Also only one travel can be carry forward to next block year. Block year is four calendar year starting from 1986. Also the block limitation applies even if the employee changes his job from one employer to another employer.

Following table will help you for a quick glance of block year applicable for LTA

Sr No Block years Sr No Block years
1 2014 – 2017 2 2018 – 2021
3 2022 – 2025 4 2026 – 2029

Example for block year: Assuming the employee has availed LTA exemption only once in the block year 2014 – 2017 then, employee can carry forward the pending LTA to the block 2018 – 2021 only if the LTA is availed in calendar year 2018. With this case employee will still remain with two times LTA exemption for calendar years 2019 – 2021.

Employees can avail optimum tax benefit by planning their vacation trip with family if employers pay the LTA to their employees.

Following is reproduction of Sec 10(5) and Rule 2A:

Section 10 (5) of the income tax act 1961 – 2020

In the case of an individual, the value of any travel concession or assistance received by, or due to, him,—

(a) from his employer for himself and his family, in connection with his proceeding on leave to any place in India ;

(b) from his employer or former employer for himself and his family, in connection with his proceeding to any place in India after retirement from service or after the termination of his service,

Air economy fare of the national carrier (Indian Airlines or Air India) by the shortest route to the place of destination.

 Air-conditioned first class rail fare by the shortest route to the place of destination.

(i) Where a recognised public transport system exists, the first class or deluxe class fare on such transport by the shortest route to the place of destination.

(ii) Where no recognised public transport system exists, the air-conditioned first class rail fare, for the distance of the journey by the shortest route, as if the journey has been performed by rail.

subject to such conditions as may be prescribed (including conditions as to number of journeys and the amount which shall be exempt per head) having regard to the travel concession or assistance granted to the employees of the Central Government :

Provided that the amount exempt under this clause shall in no case exceed the amount of expenses actually incurred for the purpose of such travel.

Explanation.—For the purposes of this clause, “family”, in relation to an individual, means—

(i) the spouse and children of the individual ; and

(ii) the parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the individual;

Rule 2B – Conditions for the purpose of section 10(5)

(1) The amount exempted under clause (5) of section 10 in respect of the value of travel concession or assistance received by or due to the individual from his employer or former employer for himself and his family, in connection with his proceeding,—

(a) on leave to any place in India;

(b) to any place in India after retirement from service or after the termination of his service,

shall be the amount actually incurred on the performance of such travel subject to the following conditions, namely :—

[(i) where the journey is performed on or after the 1st day of October, 1997, by air, an amount not exceeding the air economy fare of the national carrier by the shortest route to the place of destination;

(ii) where places of origin of journey and destination are connected by rail and the journey is performed on or after the 1st day of October, 1997, by any mode of transport other than by air, an amount not exceeding the air-conditioned first class rail fare by the shortest route to the place of destination; and

(iii) where the places of origin of journey and destination or part thereof are not connected by rail and the journey is performed on or after the 1st day of October, 1997, between such places, the amount eligible for exemption shall be :—

(A) where a recognised public transport system exists, an amount not exceeding the 1st class or deluxe class fare, as the case may be, on such transport by the shortest route to the place of destination; and

(B) where no recognised public transport system exists, an amount equivalent to the air-conditioned first class rail fare, for the distance of the journey by the shortest route, as if the journey had been performed by rail.]

(2) The exemption referred to in sub-rule (1) shall be available to an individual in respect of two journeys performed in a block of four calendar years commencing from the calendar year 1986:

[Provided that nothing contained in this sub-rule shall apply to the benefit already availed of by the assessee in respect of any number of journeys performed before the 1st day of April, 1989 except to the extent that the journey or journeys so performed shall be taken into account for computing the limit of two journeys specified in this sub-rule.]

(3) Where such travel concession or assistance is not availed of by the individual during any such block of four calendar years, an amount in respect of the value of the travel concession or assistance, if any, first availed of by the individual during first calendar year of the immediately succeeding block of four calendar years shall be eligible for exemption.

Explanation: The amount in respect of the value of the travel concession or assistance referred to in this sub-rule shall not be taken into account in deter-mining the eligibility of the amount in respect of the value of the travel con-cession or assistance in relation to the number of journeys under sub-rule (2).]

[(4) The exemption referred to in sub-rule (1) shall not be available to more than two surviving children of an individual after 1st October, 1998:

Provided that this sub-rule shall not apply in respect of children born before 1st October, 1998, and also in case of multiple births after one child.]

Disclaimer :- The above article is just views expressed by the author and any should not be constructed as an advice. All user are advised to take a professional opinion before any action.

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Name: Anup Nair
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