LTA allowance

LTA allowance

Are you going on vacations this year for a honeymoon or with a happy family tour? Is your employer reimbursing you your travelling cost. Then make sure you save tax on it by claiming exemption for it! Here's how you can save.

Leave Travel concession

When your employer pays you some monetary amount as a reimbursement to the cost of travel incurred by you when on leave from work, such monetary compensation is called Leave Travel concession. As the name itself says, it is enjoying travel at a concessional amount.

U/s 10(5) of the Income tax act, you are allowed tax exemption for LTC.

How much exemption is provided?

Air travel: When you undertake a travel by air, the maximum exemption allowed is the economy fare of the National Carrier by the shortest route to where the employee is travelling.

By railway: If you are not travelling by air and the destination is connected to the point of origin by rail, then the maximum exemption allowed would be the fare of the 1^st class air conditioned rail by the shortest route.

Not connected by Railway: If the point of origin is not connected to the destination by rail and the you have not undertaken air travel, then the maximum exemption allowed would be:

• If a recognized public transport system exists, the maximum exemption allowed is the fare of the 1^st class or deluxe class fare on such transport by the shortest route.
• If no recognized public transport system exists, the maximum exemption allowed would be equal to the air conditioned 1^st class fare for distance by the shortest route as if the travel has been done by rail.

Now can the LTC be claimed for only employee himself?

LTC can also be claimed when fare expenses are incurred for his family members and 2 children. For the purposes of LTA, family would mean

•     Parents, brothers, sisters, who are wholly dependent on the        employee
•     Spouse of the employee
•     Up to 2 children of employee after 1/10/1998. The limit will not apply to children born before 1/10/1998 and also in case of multiple births after 1/10/1998 (assuming there was already a child before multiple births)

But it must be noted that LTC is available only when the trip is done in India.

Mr. Ram goes on a holiday trip to Agra on 14th February on a Valentine's day with his wife and  3 children. He has a son aged 10 years old and twin daughters of 2 years old. They went by flight economy class and the cost of the travel tickets reimbursed by Ram's employer was

• Rs 50000 for adults
• Rs 20000 each for his children.

Can Ram claim LTC exemption?

Ram goes to a holiday trip in Agra (which is in India) with his wife and 3 children. It must be observed that multiple births had occurred 8 years after the birth of his son. As there is no applicability of restriction of 2 children in case of multiple births, Ram can claim exemption for all his 3 children. 

How much LTC can he claim?

Since Ram journeyed by flight economy class, he can claim exemption in entirety. It is clearly mentioned that exemption allowed in LTC is the fare of economy class of the National Carrier by the shortest route. Hence he can claim LTC of Rs 160000. 

What if Mr. Ram had also travelled to Dubai after visiting Agra?

The answer lies in the deductions of the income tax case

State Bank of India v/s ACIT (2017)

A TDS demand of Rs 157586 was raised on SBI by the Appellate Tribunal stating that its employees had misused the provisions of LTC to visit a foreign country. Its employees had not only travelled to Jaipur but also a foreign country. So the question now arises, can one claim LTC in case of visit to a foreign country?

LTC exemption was introduced to encourage tour in India and also there was no intention of the Indian Legislature to travel abroad under the garb of LTC benefit available by virtue of sec 10(5) of the Income Tax act.  It is clearly mentioned in the provisions (sec 10(5) read with rule 2B) that LTC is exempt only for travel made in India. It is nowhere mentioned that in case there is a foreign leg in the tour, LTC can still be claimed or LTC can be claimed upto the last expenditure done in India. Hence SBI was liable to deduct TDS on reimbursements made to its employees for foreign trips.

In the light of the above we can conclude that Mr. Ram cannot claim exemption for Venice. However if he wants to visit Venice after Agra, his employer must make sure that TDS is deducted on amount reimbursed to travel expenses for Venice.

So if you are travelling with your wife or with your parents and you get reimbursement for your travel from your employer for this, make sure you save tax on this amount and come back from trip with a smile on your face!