Salaried employees who get leave travel allowance as a part of their CTC, can claim a tax deduction on the expenses incurred during the travel. The tax deduction can be claimed for travel for self and members of the family (includes spouse, children and parents, brother, sister, if wholly dependent on assessee ) for the journey undertaken within the country. The exemption is subject to certain terms and conditions as -
This exemption does not apply to any additional local transportation, sightseeing, hotel accommodations, meals, or other expenses. The lower of the two exemptions will be allowed:
- The employer provides LTA.
- Exemption based on expenses incurred or the applicable amounts subject to the conditions covered above for each method of transportation.
You are eligible to claim exemption for LTA if you are going on a vacation subject to exemption limit as specified under the Income Tax Act, 1961. This exemption applies to the employee when the journey is performed by rail, aircraft, or bus. The exemption is as below :
- If traveling by Air : Maximum exemption shall be economy fare calculated by the airlines considering the shortest route to the destination.
- Where place of origin and destination is connected by Railways and the Journey is performed between such places : Maximum exemption shall be not more than air-conditioned first class rail fare by the shortest route.
- Where place of origin and destination is not connected by Railways : In case recognized public transport exists, maximum exemption will be of amount not exceeding first class fare of such transport by shortest route. In case recognized, public transport does not exist, amount equal to air-conditioned first class rail fare.
Other than these expenses, there are many other ways a salaried person can enjoy the benefits of the LTA. For instance, if an employee has not availed LTA for a single or two permitted journeys in a particular block of 4 years, then he can carry one journey over to the next block, which means that in the next block he will have three permitted journeys that will qualify for tax exemption but employee need to claim the carried forward journey’s expenses in 1st year of next block.
How to claim LTA tax exemption?
To claim tax benefits on your LTA, your employer might ask you to fill out certain application forms and attach documents substantiating your travel. In case you don’t travel, the LTA amount gets paid as a part of your salary and will be liable to tax according to the slab you belong to. Therefore, if you don’t take any journey, there is no tax exemption available to you.
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 and no deductions will be allowed. 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, 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.
Let's assume an employee gets 40000 rs as leave travel allowance and spends 19000 rs as travel expenses then only 19000 rs is allowed for exemption, and 21000 rs, being the amount not spent on journey, is not eligible for exemption.