We all like traveling these days, don’t we? Every year we all plan to make at least one trip. But little do we know that we could claim one of the allowances if provided by your employer. It could also help you to save taxes too! But how do you claim it? Can you claim it every year? How much amount does it cover? What is included in this? Is there an eligibility criterion to claim this allowance?
Tax deductions and exemptions provided by the Income Tax department have allowed us to save the most amount of tax possible. By using these exemptions, employers are able to structure employee Cost to Company (CTC) in a tax-efficient manner. Leave Travel Allowance (LTA) is an exemption available to salaried workers under the law that is also widely used by employers.
When planning travel for the purpose of claiming an LTA exemption, many factors need to be considered. LTA exemptions are governed by income tax provisions:
What do you mean by leave travel allowance?
Leave Travel Allowance (LTA) is an allowance provided by employers to employees who are on leave from work to cover their travel expenses. In accordance with the Income Tax Act, of 1;
961, LTAs are an important component of an employee’s salary, as they are eligible for income tax exemptions. LTA received by the employee during the year will not be included in his net income under Section 10(5) of the Income Tax Act.
What is the eligibility for claiming leave travel allowance?
The eligibility criteria for claiming the exemptions are as follows:
- It is only possible to claim LTA on actual travel costs. LTA covers all modes of transportation, including road, rail, and air. Nevertheless, the employee must submit valid proof of expenditures to receive the leave travel allowance.
- LTA can only be claimed on travel expenses. Any expenses other than travel, such as food or accommodation, cannot be included.
- LTA is only available for domestic travel expenses. The employee cannot claim LTA on expenses incurred during an international trip (if any).
- Employees cannot claim LTA every year. A block of four years can only be used to claim LTA for two journeys. The government determines the block years for LTA purposes
- Travel exemptions are available for employees alone or with their families. This includes the employee’s spouse, children, and wholly or mainly dependent parents, brothers, and sisters.
- An employee cannot claim a similar exemption for more than two children born after 1 October 1998. There are no restrictions on children born before 1 October 1998.
This restriction does not apply to multiple births after having one child on a second occasion.
How much exemption will you get?
There is a limit on how much LTA an employer may provide as an exemption. For instance, if Rs. 30,000 of LTA is granted by your employer and the actual travel cost incurred is Rs. 20,000 by an employee then the exemption will only be available till Rs. 20,000. Therefore the balance of Rs. 10,000 will be included in the taxable salary income.
Procedure to Claim LTA
LTA claims are generally handled by employers. Employers announce the deadline for employees to claim LTA and may require employees to submit proof of travel along with the mandatory declaration, such as tickets, boarding passes, invoices from travel agents, etc. Although it is not mandatory for employers to collect proof of travel, it is always advisable for employees to keep copies for their records as well as to submit them to their employer on demand based on the LTA policy of the company.
What happens to LTA if there is no traveling involved?
Due to the fact that the LTA is part of your salary structure, it is automatically credited to your account on a regular basis. If you do not travel or do not have a valid proof of travel, you cannot claim the LTA received for tax exemption purposes. Your net taxable income will be increased if you receive LTA.
Can unclaimed LTA be carried over to the next block year?
Under the carry-over concession rules, under which the employee can claim LTA tax breaks on three journeys made in the current block of years if he hasn’t claimed LTA in the last running block or has just claimed it once, the employee can still claim one additional LTA in the next block of calendar years. To utilize the carryover concession facility, one LTA exemption for the journey must be claimed during the first calendar year of the next block.
For instance, in the last block of the year, between 2018-2021, you made only one tax exemption claim under LTA as an employee. Therefore, you become eligible for LTA claims for up to 3 journeys in the current block, between 2022 and 2025. However, your first claim must be filed in the first calendar year of the current block, i.e. in 2022.