Come January and Human Resource (HR) departments start asking employees to submit investment proof for tax-related issues. You can get a tax break for various types of tax savings investments you make, as well as for allowances. Leave Travel Allowance (LTA) is one such allowance.
Bina C, a Mumbai-based chartered accountant says, "LTA is an allowance or amount you get from your employer to travel. But not all companies give you an LTA."
While salaried employees know about LTA, not everyone may know about the finer details. For instnace, will you get a tax exemption if you have travelled during the year but changed your job since then? Or is foreign travel covered? Here's a quick guide on LTA.
LTA is an allowance or amount you get from your employer to travel. It is part of your cost-to-company. Remember, not all employers give you an LTA. You can claim it when you are on leave from work and actually travel. If you are self-employed you cannot pay yourself an LTA. In fact, from a tax savings point-of-view, it's one of the best tools.
Mumbai-based certified financial planner Pankaj Mathpal says, "LTA is an allowance paid to employees by employers when the former is traveling with their family or alone. The amount paid as LTA is exempt from tax under certain conditions. LTA is tax-free, in short."
LTA doesn't cover all expenses incurred while travelling. Deepali Sen, Sebi-registered financial advisor says, "As the name suggests, it covers only travel cost expenses and not other expenses such as boarding and food."
If you are eligible for, say Rs 25,000 but you have spent Rs 15,000 on the travel cost and Rs 10,000 on hotel, food and sightseeing, then the exemption is limited to only Rs 15,000 as that is the amount spent for for travel expenses.
To claim LTA you can travel alone or with your family. For the purposes of income tax, a family means spouse, children, dependent parents as well as brothers and sisters who are your dependents. The exemption is allowed for up to two children, if the children are born after October 1, 1998. For children born before October 1998, you can claim an exemption for any number of children. The important thing to keep in mind is that if your family travels without you, don't claim LTA for that journey because the tax law says the employee should proceed on leave. If you travel alone, you can claim LTA. Remember, if you are claiming for the family, you should travel with them.
Sen says, "You have to be on leave and travel to any place in India. International trips are not eligible to claim LTA. The exemption is available for any journey made by air, road or rail anywhere in India".
Air travel: Economy class fare of a national carrier via the shortest route is allowed
Rail travel: Air-conditioned (AC) first class rail fare via the shortest route is allowed
Other modes: If a recognised public transport exists on the route you travel, then up to first class deluxe fare is allowed. Else, an amount equivalent to the AC first class rail fare is paid. Other modes of travel include, bus and rented vehicles.
You must take the shortest route to get the LTA benefit. Even if you take a longer route your exemption will be restricted to the amount for the shortest route.
There is no restriction on the number of places you can travel. You can travel to different locations on a single trip as well. Where the journey involves 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. In short, the place that is farthest from your residence will be considered for calculating the exemption amount. You can claim LTA for connecting flights if there are no direct flights available. So in case of multiple places, you can claim LTA for one trip only. For instance, for a trip from Mumbai to Banglore, Mysore, Kanyakumari and back, you can get a deduction on travel from Mumbai to Kanyakumari or for the return, not both.
Mathpal says, "Exemption is allowed for only two travels within a block of four years. There are pre-determined blocks of four calendar years; the first block began in 1986 to 1989, the next block was 1990 to 1993 and so on. You can claim an exemption for up to two journeys in a block of four calendar years. The current block is 2018-2021."
Employers usually don't have to submit proof of travel to tax authorities while assessing travel allowance claims. But we suggest you do keep tickets handy in case your employer or tax authorities need to see it later. The Income-Tax (I-T) Act says the employee needs to be "on leave to be in any other place in India". There are many organisations those go strictly by the wordings of the I-T Act and allow employees to claim LTA only if they apply for leave and submit the tickets.
Remember, both spouses can claim LTA individually. But both can't claim LTA for the same journey. Mathpal says, "If you go on a family vacation every year, it's a total of four trips. Two can be claimed by one spouse and two can be claimed by another."
What happens if you don't travel at all? Remember, there are two parts to the story. One is LTA and the other is tax benefits on LTA. Even if you do not travel, the employer will pay you the amount, but you won't be able to get a tax benefit on it. In such a case the benefit will be taxable. You can get exemption only for the amount you are eligible for and the actual amount spent on traveling. So, if your LTA amount is Rs 20,000 but you've spent Rs 30,000, you will get an exemption only for Rs 20,000.
Alternately, in case you spent only Rs 10,000, you will get an exemption for Rs 10,000 only. You will have to pay tax on the remaining Rs 10,000. LTA exemption is not part of the Income Tax Return (ITR) filing.
Mathpal says, "If you are not able to make a claim in a block, there is a carry forward facility available. You can carry forward one journey, that too, only in the first calendar year in the next block of four years. If you have switched jobs, you can carry forward unused LTA exemption from your previous employer to the next within the same block, but must retain the proof of travel to claim LTA." So in such a case, in the next block, you can claim three LTA exemptions in total.