The Income Tax Act 1961 provides certain exemption from salaries apart from deduction from Chapter VI A. Exemptions refers to certain part of salary is not considered as a income while calculating taxable Income. Deductions means a certain amount of saving or Expenditure for Specific reason is allowed to deduct from your Gross Taxable Income.
Leave Travel Allowance or Concession is one of those Available Exemption given to Salaried Assessee from his Total taxable income as per Section 10 subsection 5 of Income Tax Act 1961. As the name itself leave travel Allowance refer an amount received by employee from his employer for leave proceeding to any place in India either on leave, after retirement of service or termination from his Service. The Benefit is Available to individuals Residents as well as non- residents in respect of leave concession for himself / herself or family. Family Includes Spouse children of individual parents and brothers and Sisters dependent upon him/her.
Government has recently made an announcement vide notification F.No. 12(2)/2020-EII(A) Ministry of Finance Department of Expenditure EII(A), that all non-central government employees would be eligible for exemption subject to maximum Rs. 36,000/- per person without producing travel bills.
Certain conditions to be met for claiming Leave travel allowance as exemptions. The conditions are as follows
** Where such leave travel concession is not availed by employee in any block of four years, one such LTC will be carried forward immediately next block of four calendar year.
Where the journey is performed after 01.10.1997 the amount of LTC is exempted under section 10(5) in respect of value of LTC received or Actual Amount spend on travel subject to certain conditions:
1. Air Travel
Amount not exceeding the air economy fair of national carrier by the shortest available route to the place from destination.
2. Any other mode
i.) When rail service is Available
Amount not exceeding the air conditioned first class rail fair by shortest route.
ii.) When rail service is not available
a) A recognised public transport facility exist
Amount not Exceeding the first or deluxe class fair of such transport.
b) No recognised public transport facility exist
Amount equal to first class railway fair available by shortest route.
Example If LTA granted by employer is Rs 50,000 and actual eligible travel cost incurred by employee is Rs 30,000, exemption is available only to the extent of Rs 20,000 and balance Rs 20,000 would be included in taxable salary income.
Procedure to Claim LTC
Procedure to claim LTC is generally Organisation specific. Every Organisation announces the due date within which LTC can be claimed by the employees and may require employees to submit proofs of travel such as tickets, invoice copies or expenditure voucher provided by travel agent etc. along with the mandatory declaration.
Though it is not mandatory for employers to collect proof of travel, it can be asked by organisation to submit the records of travel as per LTC policy of the company/to tax authorities on demand.
*** Value of leave travel concession provided to high court judge or Supreme Court judge and his family members are completely exempt from tax without any condition.
Some other conditions of to be kept in mind to avail the exemption under notification F.No. 12(2)/2020-EII(A) dated 12the October 2020.
1) The employee spends the money of a larger sum than the entitlement on account of LTC on actual expenditure
2) Cash equivalent of full leave encashment will be allowed, provided the employee spends an equal sum.
3) The cash equivalent may be allowed if the employee spends a sum 3 times of the value of the fare given above. Employee who spends less than 3 times the fare amount will get proportionate income tax exemption. The purchase have to be made from 12.10.2020 to 22.214.171.124. purchasing of goods or service to be made by registered vendor of GST and GST is lavied 12% or more on Purchase made. E.g. suppose if the LTC fare is Rs 10,000, and is claimed for a family of four, then the employee would get Rs 40,000 (20,000 x
4). The amount that the employee will have to spend would be Rs 1,20,000 (Rs 40,000 x 3). However, if the employee ends up spending only Rs 96,000, the person would get tax exemption of Rs 32,000 only (80% of 40,000).
5) The Concession is not available to an employee who has exercised an option to pay income tax under new income tax / concessional tax regim.