Leave Travel Allowance (LTA)– Its Calculation, Rules and Exemption

What is LTA in salary? The Income Tax Act 1961 has exemptions for the salaried employee accounted for as LTA deductions. Other such deductions from your salary could be housing loan interest, LIC premiums, PF contributions etc. These deductions are subtracted from the gross salary to provide the total taxable income. Some of the deductions are eligible for exemption which means exclusion from tax up to certain limits and their eligibility conditions. The exemptions provide employees with a CTC or Cost to Company structure that makes the computation of taxable income efficient and transparent.

LTA or Leave Travel Allowance is such an allowance and is also called LTC or Leave Travel Concession. The LTA exemption in respect to your former employer remains applicable during travel after your retirement. 

What is LTA allowance? 

LTA allowance is a great tax-saving tool in the hands of the employee. The LTA full form is Leave Travel Allowance, also called LTC or Leave Travel Concession. The employer pays an allowance to the employee when he/she travels alone or with family when on leave/vacation and is a tax-free allowance. The exemption is available when proof of travel is produced to the employer who reimburses the same subject to the eligibility conditions for LTA.

What is LTA?

LTA meaning, Leave Travel Allowance, is an allowance added to your basic pay and is provided by the employer to offset travel costs when travelling alone or with family for a vacation. It applies to within the country costs of travel.

LTA Comes Under Which Section for IT Purposes? 

The 1961 Income Tax read and Rule 2B and Section 10(5) define the meaning, tax exemption, and conditions laid out to claim LTA tax exemption. Let us look into these briefly.

LTA Rules for Exemption In FY 2021

The latest update makes LTA un-applicable to taxpayers under the new tax regime. Though it is well-known that Leave Travel Allowance is tax-exempt, there are some exemptions and limits on the allowance. Here’s a list of them.

• The LTA exemption is restricted to travel costs only when the employee undertakes the trip during his leave period. 
• The exemption does not cover all costs/expenses like food, shopping etc., incurred during the trip.
• The tax exemption is not applicable for more than 2 children of the employee born after 1998 October 1^st. 
• LTA exemption is applicable for 2 travel trips in a block of 4 years. (Current block period is 2014-17). 
• The employee can carry over the exemption from this block to the next block if he has not claimed the current block.

Leave Travel Allowance Section – List Of Exempt Expenses

Here’s a list of expenses that are exempt under the LTA rules.

• Air Travel by Economy class and limited to the lesser amount spent or costs for the shortest route.
• Rail Travel by A.C. coach in first-class limited to lesser of the actual travel amount or the cost via the shortest route, whichever is lesser.
• Journey performed via other transportation modes when the destination and place of origin are rail-route connected. 
• Journey performed via other transportation modes when the destination and place of origin are not rail-route connected (fully/partially) but are connected via a recognized Public Transport system.
• Journey performed via other transportation modes when the destination and place of origin are not connected by rail-route (fully/partially) or a recognized Public Transport system.

Also Read: Conveyance Allowance- Definition, Limit, Exemption and Calculation 

How To Calculate LTA In Salary?

Employees are allowed to make two LTA claims in a 4-year block. The Income Tax Department notifies the block years, which are not necessarily in line with the Financial Year used for ITR or Income Tax Return filing. For example, the previous block of 4-years was from 2014 January 1^st to 2017 December 31^st  and the current one from 2018-2021. Hence you can claim two journeys undertaken during this block of 4-years for tax exemptions. However, suppose the employee has not travelled during this block of years. In that case, the LTC concession for tax-exemption can also be carried over to the next FY or financial year and not the block of 4-years. Note that all expenses for food, stay, shopping, sightseeing, etc., are not covered. It is only the ticket or travel fare that is considered for LTA exemption.

The Block of 4 Years Explained:

Each block decided by the Government for LTA exemption comprises 4 years. The first block began in 1986. Thus the block years are 1986-89, 1990-1993, 1994-1997, 1998-2001, 2002-2005, 2006-2009, 2010-2013 and so on. The current block now is 2018-21 and the previous one from 2014-2017.

LTA Example

Let us consider how LTC is treated. For example, Raj is entitled to an LTA amount of Rs 35,000. He has claimed an amount of Rs 20,000 in FY 2017 as his leave travel claim. The LTA deduction applicable in this case is only Rs 10,000, and Rs 15,000 gets added to his taxable income. LTA is paid only as per the claim and for the shortest route from origin to destination and back. Also, Raj is allowed only 2 claims for LTC for 2014 to 17 (which is the current block). If Raj does not prefer a claim, he can carry over the leave travel entitlement to the next FY. This claim is not to be considered in the next block of years. Here’s a chart that explains when you can carry it over.

How To Claim Leave Travel Allowance?

The employers don’t need to submit travel proof of the employees to the tax authorities for claims and assessment of LTA. But they generally have the right to collect such documentary proof for reimbursements. Hence, you should keep travel proof such as flight tickets, boarding passes, travel agent invoices, on-duty passes, or documentary travel proof. At times, the assessing tax officer or company auditors may also scrutinize these proofs submitted by the employee.

The LTA in salary structure is not like other allowances and is not common in your take-home salary. Always check the pay structure before claiming LTA. The amount available to the employee can vary from one person to another. You need to have LTA eligibility, produce bills/ tickets, etc., as proof of travel to your employer. 

The procedure followed to make an LTA claim is as follows.

• The company announces the dates before which LTA travel bills claims for the current block are to be made.
• You need to complete making the LTA calculation, fill in the applicable LTC claim forms, attach your travel documents like a boarding pass, duty pass, flight or travel tickets, boarding pass etc., and submit it to the accounts or HR teams.
• The LTA claim forms need to be submitted before your employer calculates your final tax liability.
• Your employer will issue a Form-16 after certifying your LTA claim. 

Eligibility For Leave Travel Allowance

To be eligible to claim LTA, you will need to travel and should have taken leave to travel. Your trip can be for travel in India only and without or with family members. The LTA rules specify that the LTA benefit is not an entitlement offered to all employees. Instead, it is dependent on factors like the employee’s pay scale, designation etc. The employer makes this entitlement to an employee based on his discretion and decides the LTA amount specified in the salary contract’s leave travel allowance section.

LTA Benefits

Leave Travel Concession or Allowance is an important part of your salary structure and is also a great saving tax tool under the Income Tax Act 1961. 

• LTA is an addition to your basic salary. However, the entitlement is based on several factors like designation, pay scale, position, etc. 
• You can only claim the benefits of LTC/LTA if you have LTA entitlement and it is a part of your salary structure. 
• LTA can be claimed when you travel during your leave period, whether alone or with your family. The leave travel allowance covers the family meaning the spouse, parents, children and siblings when you travel with them.
• The LTC amount does not cover expenses like hotel room rents, food, etc.
• It can be claimed for travel by flight, rail, public transport or other modes like taxi, car, etc., by the shortest route between origin to destination and back.
• LTA amounts cover only travel in India and not travel abroad.

Also Read: Dearness Allowance (DA)- Defination, Types & DA Calculation

Documents For LTA Claim 

To claim LTC or LTA, an employee has to submit to the employer

• LTA form. 
• Travel bills, boarding pass, flight or rail tickets and other documents.

Once you submit the LTC claim and the employer approves it, Form 16 issued to you by your employer will contain details of the allowance paid for and tax-free. All other travel expenses will be treated as taxable.

The Bottom Line:

The article has briefly discussed what is meant by LTA/ LTC, which means Leave Travel Allowance or Leave Travel Concession. This allowance is made to cover the employee’s travel expenses when on leave with or without his family. It is used to retain employees and keep them healthy and happy.