Leave Travel Allowance (LTA) is the most common element of compensation adopted by employers to remunerate employees due to the tax benefits attached to it. Section 10(5) of the Income-Tax Act, 1961, read with Rule 2B, provides for the exemption and outlines the conditions subject to which LTA is exempt. Here I would like to shed light on the taxability and some other interesting relevant aspects which you as a salaried employee must keep in mind.
Who and what is covered?
LTA exemption can be claimed where the employer provides LTA to employee for leave to any place in India taken by the employee and their family. Such exemption is limited to the extent of actual travel costs incurred by the employee. Travel has to be undertaken within India and overseas destinations are not covered for exemption.
For example, where an employer provides LTA of Rs 35,000, but an employee spends only Rs 30,000 on the travel cost, then the exemption is limited to only Rs. 30,000.
Travel cost means the cost of travel and does not include any other expenses such as food, hotel stay etc. The meaning of ‘family’ for the purposes of exemption includes spouse and children and parents, brothers and sisters who are wholly or mainly dependent on you.
An individual would not be able to claim the exemption in relation to his parents, brother or sisters unless they are wholly or mainly dependent on the individual. Further, exemption is not available for more than two children of an individual born after October 01, 1998.
This restriction does not apply in respect of children born before this date, and also in cases where an individual, after having one child, begets multiple children (twins or triplets or quadruplets, etc.) on the second occasion. The term “Child” includes a step-child and an adopted child of the individual.
Is exemption available every year?
No. The tax rules provide for an exemption only in respect of two journeys performed in a block of four calendar years. The current block runs from 2010-2013. If an individual does not use their exemption during any block on any one or on both occasions, their exemption can be carried over to the next block and used in the calendar year immediately following that block.
In such cases, the journey performed to claim such exemption will not be counted for the purposes of regulating future exemptions allowable for the succeeding block. For example, Mr. X joins an organisation on April 1, 2008 and is entitled to a LTA of Rs 35,000 per annum (financial year 2008-09).
X undertook a journey in December 2008 and used his exemption. However, for his LTA entitlement for 2009-10, he did not undertake a journey during the calendar year 2009.
He can undertake the journey in 2010 to claim the exemption in relation to the LTA. He would also be able to use the LTA benefit for two other journeys which he can undertake in the current block 2010-13 in relation to his LTA entitlement for future years.
Proof of travel
The individual needs to submit proof of travel to his/her employer and also keep copies for his or her own records. Such proofs are helpful at the time of the audit of the tax return of the individual. Proof of travel could be, for example, tickets, boarding passes, invoice of travel agent, duty slip etc .
Q. To qualify for exemption is it necessary to perform actual journey?
A. Yes, certainty. In case the L.T.C. is encashed without actually performing the journey the entire amount received by the employee would be taxed in his hands.
During the Fringe Benefit tax (FBT) regime, provision of paid holidays, including travel cost to any place, stay expenses etc. were subject to FBT in the hands of employers and were not taxable in the hands of individuals. Many employers extended the paid holiday benefit instead of LTA.
Now with the elimination of FBT, with effect from. April 1, 2009, paid holiday benefit is fully taxable in the hands of employees.
Exemption Limit
What are the limits of exemption in L.T.C. is granted to an employee in connection with the journey on leave by him or his family? It is exempt from income tax within certain limits as under: -
(a) Where journey is performed by rail; railway-fare in Second AC class by shortest route to destination.
(b) Where places of origin and destination are connected by rail but the journey is performed by any other mode then Second AC class fare by shortest route to the place of destination.
(c) Where place of origin of journey and destination, or part thereof, are not connected by rail and journey is performed by any other transport; then
(i) If a recognised public transport system exists between such places the first class or deluxe class fare of such transport by shortest route, or,
(ii) If in other case, Second AC class fare for the distance of the journey by the shortest route, as if the journey has been performed by rail.
Exemption will, in no case exceed actual expenditure incurred in the performance of journey.
Leave Travel Concession Rules have been amended on the recommendation of the Fifth Pay Commission to extend the facility of travel by air economy Y- Class to certain categories of employees of the Central Government with effect from 1st October, 1997.
Consequently, where the journey is performed on or after 1st October, 1997 by air, an amount not exceeding the air economy fare of the National Carrier by the shortest route to the place of destination.
Also, where the entitlement was previously for air-conditioned Second Class Rail fare, it has been upgraded to air-conditioned First Class Rail fare. [l.T. (First Amendment) Rules 1998, O.O.I. Gazette Notification No. S.O. 34(E) dt. 12th Jan. 1998; CBDTF.No. 142/85/97-TPL No. 105021].
Q. Will the above change apply only to government employees or does it apply also to employees of other sectors?
A. The change applies to all employees
Who and what is covered?
LTA exemption can be claimed where the employer provides LTA to employee for leave to any place in India taken by the employee and their family. Such exemption is limited to the extent of actual travel costs incurred by the employee. Travel has to be undertaken within India and overseas destinations are not covered for exemption.
For example, where an employer provides LTA of Rs 35,000, but an employee spends only Rs 30,000 on the travel cost, then the exemption is limited to only Rs. 30,000.
Travel cost means the cost of travel and does not include any other expenses such as food, hotel stay etc. The meaning of ‘family’ for the purposes of exemption includes spouse and children and parents, brothers and sisters who are wholly or mainly dependent on you.
An individual would not be able to claim the exemption in relation to his parents, brother or sisters unless they are wholly or mainly dependent on the individual. Further, exemption is not available for more than two children of an individual born after October 01, 1998.
This restriction does not apply in respect of children born before this date, and also in cases where an individual, after having one child, begets multiple children (twins or triplets or quadruplets, etc.) on the second occasion. The term “Child” includes a step-child and an adopted child of the individual.
Is exemption available every year?
No. The tax rules provide for an exemption only in respect of two journeys performed in a block of four calendar years. The current block runs from 2010-2013. If an individual does not use their exemption during any block on any one or on both occasions, their exemption can be carried over to the next block and used in the calendar year immediately following that block.
In such cases, the journey performed to claim such exemption will not be counted for the purposes of regulating future exemptions allowable for the succeeding block. For example, Mr. X joins an organisation on April 1, 2008 and is entitled to a LTA of Rs 35,000 per annum (financial year 2008-09).
X undertook a journey in December 2008 and used his exemption. However, for his LTA entitlement for 2009-10, he did not undertake a journey during the calendar year 2009.
He can undertake the journey in 2010 to claim the exemption in relation to the LTA. He would also be able to use the LTA benefit for two other journeys which he can undertake in the current block 2010-13 in relation to his LTA entitlement for future years.
Proof of travel
The individual needs to submit proof of travel to his/her employer and also keep copies for his or her own records. Such proofs are helpful at the time of the audit of the tax return of the individual. Proof of travel could be, for example, tickets, boarding passes, invoice of travel agent, duty slip etc .
Q. To qualify for exemption is it necessary to perform actual journey?
A. Yes, certainty. In case the L.T.C. is encashed without actually performing the journey the entire amount received by the employee would be taxed in his hands.
During the Fringe Benefit tax (FBT) regime, provision of paid holidays, including travel cost to any place, stay expenses etc. were subject to FBT in the hands of employers and were not taxable in the hands of individuals. Many employers extended the paid holiday benefit instead of LTA.
Now with the elimination of FBT, with effect from. April 1, 2009, paid holiday benefit is fully taxable in the hands of employees.
Exemption Limit
What are the limits of exemption in L.T.C. is granted to an employee in connection with the journey on leave by him or his family? It is exempt from income tax within certain limits as under: -
(a) Where journey is performed by rail; railway-fare in Second AC class by shortest route to destination.
(b) Where places of origin and destination are connected by rail but the journey is performed by any other mode then Second AC class fare by shortest route to the place of destination.
(c) Where place of origin of journey and destination, or part thereof, are not connected by rail and journey is performed by any other transport; then
(i) If a recognised public transport system exists between such places the first class or deluxe class fare of such transport by shortest route, or,
(ii) If in other case, Second AC class fare for the distance of the journey by the shortest route, as if the journey has been performed by rail.
Exemption will, in no case exceed actual expenditure incurred in the performance of journey.
Leave Travel Concession Rules have been amended on the recommendation of the Fifth Pay Commission to extend the facility of travel by air economy Y- Class to certain categories of employees of the Central Government with effect from 1st October, 1997.
Consequently, where the journey is performed on or after 1st October, 1997 by air, an amount not exceeding the air economy fare of the National Carrier by the shortest route to the place of destination.
Also, where the entitlement was previously for air-conditioned Second Class Rail fare, it has been upgraded to air-conditioned First Class Rail fare. [l.T. (First Amendment) Rules 1998, O.O.I. Gazette Notification No. S.O. 34(E) dt. 12th Jan. 1998; CBDTF.No. 142/85/97-TPL No. 105021].
Q. Will the above change apply only to government employees or does it apply also to employees of other sectors?
A. The change applies to all employees
1 comment:
Do I need to submit Taxi bill with Service Tax Registration number and service tax paid bill for income tax benefit. I have to claim LTA and travelled by Taxi.
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