As the name suggests, Leave Travel Allowance is an allowance provided by the employer to the employee for travelling while on leave. It applies to travel only within the country. Under Section 10(5) of the Income Tax Act, this is a part of salary and is exempted. As a result, many employers and employees choose to disburse a part of the CTC in the form of LTA to maximise post-tax income.
- You can claim LTA for your family members, including your parents, children, spouse and siblings if they have accompanied you on the trip. However, LTA exemptions are not available for more than 2 children.
- Moreover, not all holidaying expenses can be exempted. Only expenses incurred on domestic travel - by air, train or public mode of transportation - are eligible for exemptions.
- Any expenses incurred on sightseeing, hotel accommodation, food, etc. are not eligible. International travel is also not covered under LTA.
- Let’s assume you received LTA of ₹35,000 from your employer. If you spent only ₹20,000 of that amount on travel expenses, the rest of your LTA i.e. ₹15,000 would not be exempted.
How do you claim benefits on your LTA?
To claim tax benefits on your LTA, your employer might ask you to fill certain application forms and attach documents substantiating your travel. If you are unable to make an LTA claim within the stipulated time, you can do so in the next assessment year. However, your employer will have to certify this under Form 16, as LTA exemption is not incorporated under Income Tax Return Filing (ITR). You should also keep in mind that LTA cannot be claimed more than twice in four years.
What happens when I don't travel or fail to produce travel documents to my employees?
If an employee fails to bring valid proof of travel or does not travel at all, the received Leave Travel Allowance is added to the net taxable income, without any deductions. Employers don't need to secure proof of travel from their employees. However, if company policy dictates so, they would reserve the right to ask for documentary proof. Hence, the employees must keep evidence of travel, such as flight tickets, available and ready to produce. As the documentary proof might also be necessary for tax audits, employees should keep copies of the same with themselves.