Leave Travel Allowance Exemption and Tax liability

Introduction:

Leave Travel Allowance is given to employee by his employer to cover his travelling expenses when he goes on vacations. Exemption is available for travel to an employee alone or with his family. Family includes his spouse, children, dependent father or mother, dependent brother or sister. Children include not more than two children whether adopted or step child. LTA can be claimed when an employee submits actual bills of travelling to his employer. Exemption of LTA is allowed for travelling in India only not cover out of India.

Conditions for Exemption on LTA is allowed under section 10(5):

1. He goes on vacations during the leave from work.
2. Only Domestic Travel is allowed i.e. travelling alone or with his family to India not foreign countries.
3. Travelling includes only travelling expenses, expenses on food, stay or shopping is not covered under LTA exemption.
4. Travelling bills has to be kept as proof of expenses.

How many times LTA exemption can be claimed or can be carry forward?

The assessee can claim LTA twice in a block of 4 years. If you have not claimed even a single time, or claimed only once in a block of four years, you can carry forward balanced one to next block of years.

For example:

During block of 2014-2017, you have claim LTA only once a time. Now you can claim balance one in next block of 2018-2021 only; there after it cannot be carry forwarded again.

There is one exception that you cannot claim twice a time in first year only.

Tax Exemption under section 10 (5)-

The Following amount is eligible for LTA exemption-

1. Travelling by Air: Economy Air fare of National carrier by the shortest route or the amount spent whichever is less will be exempt from Tax.
2. Travelling by Rail: A.C. first class rail fare by shortest route. Or amount spent whichever is less will be exempt.
3. Place of origin and destination place of journey connected by rail but travelling made by other mode of transport other than air: A.C. first class rail fare by shortest route or amount spent whichever is less.
4. Place of origin & destination not connected by rail (partly/fully) but connected by other recognised Public transport system: First class or deluxe class fare by shortest route or amount spent whichever is less.
5. Place of origin & destination not connected by rail (partly/fully) and not connected by other recognised Public transport system also: AC first class rail fare by shortest route (as the journey had been performed by rail) or the amount actually spent, whichever is less.

Example:

Mr. X, an employee of ABC Pvt. Ltd. travelled with his family from Chandigarh to Hyderabad and back through business class flight. His total expense on air tickets was Rs. 52,000. The economy class airfare of travelling is Rs. 25,000. His employer reimbursed Rs. 52,000 to him. How much of his LTA be exempt from tax?

Solution:

The airfare of economy class is lower than the actual amount of money spent on tickets. Therefore, only Rs. 25,000 will be exempt from tax and remaining Rs. 27,000 will be added to his taxable income.