What is Leave Travel Allowance (LTA)?

What is Leave Travel Allowance (LTA)?

Leave Travel Allowance (LTA) is a benefit included in an employee’s salary package, covering travel expenses incurred by the employee and their family when they travel within India during their leave. LTA aims to encourage employees to take vacations while offering tax exemptions on travel costs.

According to Section 10(5) of the Income Tax Act, the amount received as LTA is exempt from tax, subject to meeting certain conditions. However, employees who opt for the new tax regime introduced in 2020 are not eligible for LTA exemptions.

Key Features of Leave Travel Allowance

1. Exemption Eligibility: The key feature of LTA is that it allows employees to claim tax exemptions on travel expenses when they travel within India. The exemption extends to the employee, their spouse, children, and dependent parents or siblings.

2. Block System: LTA exemptions can be claimed for a maximum of two trips within a block of four years. For example, the current block is from 2022 to 2025. If an employee doesn't use the full LTA benefit in one block, they can carry it over to the next block, but only if they claim it in the first year of the new block.

3. Types of Travel Covered: LTA applies to travel by air, train, or road. However, it only covers transportation costs, not expenses for accommodation, meals, or sightseeing.

4. Exemption Limit: The LTA exemption is limited to the actual travel expenses incurred by the employee. For instance, if the employee’s entitlement is ₹30,000 but their actual expenses are ₹20,000, they can only claim ₹20,000 as tax-exempt.

5. Multiple Destinations: If an employee visits multiple destinations on a single trip, the exemption applies only to the travel expenses from the point of origin to the farthest destination. For example, if an employee travels to Delhi, Mumbai, and Kolkata, the exemption will apply to the travel cost from their home city to Kolkata, the farthest city.

Eligibility Criteria for LTA

To claim LTA, employees must fulfil the following conditions:

1. Travel Within India: LTA is only applicable for domestic travel within India. International travel does not qualify for LTA exemptions.

2. Actual Travel: Claims can only be made if the employee has actually undertaken the journey. LTA cannot be claimed for a trip that hasn’t taken place.

3. Leave Requirement: LTA claims are valid only when the employee is on leave during the travel period. Travel taken during official holidays or weekends does not qualify for LTA.

4. Family Members: The employee’s spouse, children, and dependent parents or siblings are eligible for LTA claims. However, employees with more than two children born after October 1, 1998, are not eligible for LTA exemptions for those additional children. This restriction does not apply to children born before this date or in the case of multiple births after the first child.

5. Proof of Travel: Employees must submit valid travel documents, such as tickets, boarding passes, and invoices, to claim LTA.
 

How LTA Exemption is Calculated

LTA exemption is based on the actual travel expenses incurred, subject to the employer’s LTA allowance. The key aspects to consider when calculating LTA exemption include:

1. Travel Expenses: This includes the cost of air tickets, train fares, or bus fares for the employee and eligible family members. The exemption will only cover the actual fare or the amount set by the employer, whichever is lower.

2. Mode of Transport: For air travel, the exemption is capped at the economy class fare of Air India for the shortest route to the destination. If the employee travels by train, the exemption applies to the cost of the shortest route, using an AC first-class ticket fare.

3. No Exemption for Accommodation or Meals: While LTA covers travel expenses, it does not extend to costs like hotel stays, meals, or local transport. Only the travel fare is eligible for tax exemption.
 

Block Period and Carry Forward of Unused LTA

LTA can be claimed twice during a four-year block period. For example, the current block spans 2022 to 2025. If an employee doesn’t utilise the full benefit of LTA within a block, the unused amount can be carried forward to the next block, but only if the claim is made within the first year of the new block. If not, the entitlement lapses.

How to Claim Leave Travel Allowance

Claiming LTA is relatively simple, but the process can vary based on an employer’s policies. The general steps are:

1. Check Eligibility: Ensure that LTA is part of your salary package and confirm the conditions set by your employer for claiming it.

2. Submit Documents: After completing the trip, submit necessary documents, such as travel tickets, boarding passes, and travel invoices, to your employer for verification.

3. Fill in the Claim Form: Some employers require employees to fill out a specific claim form for LTA. Ensure you fill it out correctly and submit it on time.

4. Claim Within the Block: Ensure that you claim LTA within the applicable block. If you have unused LTA from the previous block, you must claim it in the first year of the new block.

Benefits of LTA for Employees

1. Tax Savings: LTA offers employees a chance to reduce their taxable income by claiming exemptions on travel expenses, resulting in potential tax savings.

2. Encourages Family Travel: LTA benefits employees by allowing them to travel with their families, making it an ideal benefit for employees with dependents.

3. Promotes Work-Life Balance: LTA encourages employees to take time off and recharge by travelling, thus improving work-life balance and reducing stress.

Conclusion

Leave Travel Allowance (LTA) is an excellent benefit for employees, providing an opportunity to save on taxes while enjoying a holiday within India. By understanding the eligibility criteria, calculation methods, and block system, employees can maximize the benefits of LTA. However, it’s important to remember that LTA is applicable only for domestic travel, and only the travel expenses (not accommodation or meals) are eligible for tax exemptions. By adhering to the requirements and submitting the necessary documentation, employees can make the most of this tax-saving opportunity and take a well-deserved break.