LTA - Leave Travel Allowance: Rules, Exemption for Claiming, Benefits

What is Leave Travel Allowance/Concession (LTC)?

Leave Travel Concession is a tax-free allowance offered to employees by employers as a part of their salary component. Under this allowance, the costs incurred by the employee on taking a trip for leisure purposes are allowed as a tax-free expense. Employees can, therefore, take a leave from work and travel on a vacation and the costs incurred would be allowed as a tax-free allowance by the employer.

What are the conditions to be fulfilled for claiming LTC exemption?

To claim an exemption for LTC, the following conditions should be fulfilled by employees -

• The vacation should be taken only within India
• Costs incurred for family members who travel with the employee would also be allowed as an exemption. The family members for this purpose would include spouse, children, dependent parents and dependent siblings.
• Exemption can be claimed for up to two children if they are born on or after 1st October 1998. For children before this date, there would be no restriction. Exemption can be claimed for all dependent children travelling with the employee born before 1st October 1998.
• LTC exemption would be allowed for up to two journeys taken within a block of four calendar years.

LTA Components must be there in the salary structure.
Actual journey must to claim the exemption

Determination of the block of four years

The block of four years for claiming LTC exemption has been stated by the Government of India. It is as follows -

What is the quantum of LTC exemption?

The quantum of LTC exemption which can be claimed as a tax-free expense depends on the actual cost incurred on travelling. The expense incurred on booking a journey starting from the employee’s place of origin to the place of travel and back is allowed as LTC exemption. The journey should, however, be undertaken through the shortest possible route through air, rail or bus. Only the cost of tickets booked for travel would be allowed as an exemption. Costs incurred on conveyance, sightseeing, accommodation, shopping, food, etc. would not be allowed. If the LTC allowance offered by the employer is lower than the actual cost incurred on travelling, the exemption would be limited to the LTC allowed by the employer and not the actual costs incurred.

For instance, if the employer allows a LTC of INR 25,000 and the employee incurs travel costs on INR 35,000 on booking travel tickets, LTC exemption can be claimed only on INR 25,000. On the other hand, if the employee incurs a cost of INR 20,000, the exemption allowed would be INR 20,000 since it is lower than the actual LTC allowed by the employer.

Eligible travel fares for LTC exemption?

The actual travel costs incurred on travel allowed for LTC exemption is determined based on the following rules –

When the destination is not connected by any recognized public transport system directly If the destination is not connected directly by a recognized public transport, the exempted travel costs would be considered to be the fare of AC first class rail tickets from the origin city to the destination city assuming the journey is done by rail and the shortest route is taken.

When the destination is connected by all recognized public transport other than trains If the destination is connected by other modes of public transport but there is no train connectivity, the exempted cost would be the fare of first class or deluxe class on such transport for the journey taken using the shortest route.

When the destination is connected by trains If the destination is connected by trains, the exempted cost would be the fare of AC first class train ticket for the shortest route whether the journey has been taken by train or not.

When the employee travels by air If the employee travels by air, the exempted cost would be the fare for economy class of a national carrier using the shortest route.

Unclaimed LTC

LTC exemption is available for two journeys undertaken in a block of four years. However, if the employer does not take two journeys within the four year block, only one unutilized LTC can be carried forward to the next block of years and claimed therein. To claim the unutilized LTC, however, the employee would have to take a trip in the first calendar year of the next block. If the unutilized LTC is not claimed within the first year of the next block, it would expire and would not be allowed to be claimed later on.

Claiming LTC in case of a job change

Even if the employee changes his/her job, LTC exemption would be available. If the change happens within the block of four years and there is any unutilized LTC, it can be claimed with the new employer. However, if the LTC has been availed from the old employer, no new LTC would be allowed by the new employer.

Claiming LTC for multi-destination travel

If the employee travels to two or more cities when taking a vacation, the exempted LTC amount would be the cost of return travel from the resident city to the city farthest from the employee’s city and back.

Claiming LTC for a vacation on holidays

Under the Income Tax Act, LTC is allowed only when the employee takes a leave from work and then travels on a vacation. If the travelling is done on holidays, the same is not allowed for LTC exemption. Organizational practices might, however, differ. Some companies might allow LTC exemption even if the trip is taken on a holiday while some companies might not allow exemptions in such cases.

How to claim LTC in income tax return?

LTC exemption can be claimed in the income tax return of the employee under exempt allowances. However, initially, the allowed exemption is calculated from the employee’s salary income and shown in Form 16 which is issued by the employer. For claiming LTC exemption from salary income, employees should furnish proof of travel which includes their travel tickets in original so that the travel costs can be verified. On the basis of submitted proofs, it will be treated as exempt allowance by the employer and accordingly, it will reflect in your Form 16.