Leave Travel Allowance (LTA) is a sort of allowance given by the employer to an employee to reimburse the travel expenses when the employee is on leave from work. LTA is exempted from taxation under Section 10 (5) of the Income Tax Act, 1961.
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For an employee, Leave Travel Allowance is an amazing tax saving medium. Many corporate companies in India grant LTA which the employee can claim if he/she goes on a vacation after submitting the actual bills for verification. The total amount given as Leave Travel Allowance is free from taxation.
According to Section 10 (5) of the Income Tax Act, 1961 and Rule 2B, an employee who has claimed for LTA will be assured exemption of the LTA from taxation. Section 10 (5) of the Income Tax Act, 1961 and Rule 2B also provides details on the various conditions that are subjected to tax exemption.
The Exemption Conditions Under Leave Travel Allowance
Even though Leave Travel Allowance amount is exempted from tax imposition, the claim must meet certain criteria to avail the exemption.
- Under LTA policy, the exemption is applicable only to the travel expenses incurred by the employee.
- The exemption is not applicable for any other expenses (food, shopping, entertainment etc.) apart from the travel cost.
- The exemption covers only the travel cost of two or fewer children of the employee (children born after October 01, 1998).
- The exemption is available twice within a span of four years.
- When the employee doesn’t utilize the LTA exemption then the benefit is carried over to the next year.
Leave Travel Allowance has a list of expenses that can be exempted from taxation
- Air Travel: An economic air fare via the shortest route or the cheapest fare amount is exempted (under the condition of whichever is lesser).
- Rail Travel: First class AC coach fare via the shortest route or the cheapest fare amount on travel is exempted (under the condition of whichever is lesser).
- The journey the employee undertook via another mode of transport despite the location of origin and destination being connected by rail.
- The journey that one undertook via other recognized public transport system when the location of origin and destination is partly or not connected by rail.
- Travel to a remote destination via private transport when there is no mode of a government sanctioned transport system.
Proof for Availing Leave Travel Allowance
The employers are not required to submit any sort of proof of travel to the tax authorities during the assessment for the claims.
To claim for LTA benefit, the employee must submit proofs such as
- Boarding passes
- Flight tickets
- Invoice of travel agent
- Duty pass
- Any other documents for proof, if the employer demands it.
The Travel Limit Conditions to Avail LTA
In India Travel Allowance can be claimed on conditions that it meets the requirement of travel limitations
- Leave Travel Allowance can be claimed only on domestic travel as it does not cover international travel.
- The mode of travel applicable for the reimbursement should be either air travel, railway or public transport system.
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Characteristics of Leave Travel Allowance
In an employee’s salary structure, Leave Travel Allowance is one of the keys elements as it aids in tax savings. LTA is applicable for claims solely for travel fare or tickets procured from travel within India but, expenditures for accommodation or other bills will not be entertained for exemption.
To apply for LTA the employee must produce his/her travel-related bills of the journey to save on taxable income. The amount of LTA that is accounted to the salary structure is based on many factors like the title of the employee, his/her official designation in the organization, pay scale etc.
Employees can avail LTA benefits only if LTA is a part of the salary structure. One can make claims if he/she traveled alone or with family, under some conditions. LTA benefit is also applicable to travel expenses for immediate family members (parents, siblings, spouse, and children) under conditions that the employee provides proof of the travel as such.
Procedure for LTA Claims
It is highly recommended that in order to claim for LTA one must firstly check his/her pay structure. The amount credited for Leave Travel Allowance can vary from one employee to another. An eligible claimant will have to submit tickets or fare bills to the employer, according to the requirements. In India organizations generally, give the formal announcement about the dates for LTA claims.
The employee making the claim must fill in the application forms, attach the verification documents such as travel tickets, boarding pass etc. and pass it on to the HR or the office’s Accounts Department. Employees should always make the Leave Travel Allowance claim before an employer comes up with the final calculation of tax liability.
Calculation of Leave Travel Allowance
The block years in LTA are different from Financial Years and decided by Income Tax Department. In India, employees are currently under the block year of 1st January 2014- 31st December 2017. Here, the employee can claim for LTA upon two journeys which have been undertaken during 2014-17. But, if the employee does not utilize the claims, the exemption gets carried forward to the next year and not to the next block.
If an employee switches jobs, he/she is eligible for the LTA not just from the current employer but also from his/her former employer under the fact that there remains any unused claim. The employee will, however, be required to produce his/her earlier tax return to the new employer.
Eligible Criteria for Availing Leave Travel Allowance
LTA is an entitlement as it is not given to every employee. The benefit is decided upon factors like the grade, pay-scale etc. of the employee. The employer is the authority that decides the amount which must be credited for LTA. To be eligible for Leave Travel Allowance, the employee must apply for leave from work and travel physically.
The Restrictions under LTA
There are certain lines of restriction under Leave Travel Allowance
- The Leave Travel Allowance is valid solely for travel expenses.
- Availing this benefit is only applicable for travel within India.
- Proof of travel should be maintained as required during tax auditing purposes.
- The exemption under this policy does not cover more than two children.
- Employees are entitled to claim LTA twice within a block of four years.
Tax Refund on Leave Travel Allowance
If an individual is unable to claim the Leave Travel Allowance within that year, then he/she can move the claim to the next year. It needs to be noted that LTA exemption does not fall under the Income Tax Return (ITR) filing, hence the employer will certify the LTA claim and add it to Form 16.