The LTA is an allowance paid to the employee by the employer when the former submits original travel tickets/invoices, which were used for travelling with their family or alone when the employee was on leave.
The amount paid as LTA is tax free. The LTA is one of the best tax-saving components that an employee can avail.
Multifold Benefits of LTA
Availing the LTA is beneficial for the employees’ mental wellbeing, as it encourages them to take leave and spend quality time with their family for rejuvenation and work-life balance.
Encouraging employees to avail earned/privilege leaves also helps organizations as they don’t have to encash leaves upon an employee’s exit or retirement, which can be significantly high in cases where employees avail very few leaves!
If you look at the bigger picture, LTAs indirectly boost the tourism and travel sector as more and more salaried individuals and their families travel during their annual leaves/vacations!
Maximum Claim Limits
Though, there is no upper limit defined for LTA by the income tax authorities, most organizations cap it for effective administration. The most popular upper limit capped for LTA is an employee’s monthly basic salary.
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LTA Restrictions
As the name suggests, LTA exemption is restricted only to the travel cost incurred by the employee. It’s not valid for other costs incurred during the entire trip, which might include expenses such as food, shopping and stay, etc.
Concept of block years
An employee can claim for LTA for only two journeys in a block of four years. These block years are different from the financial years (they’re based on calendar year) and are created by the Income Tax department.
Current Block for LTA Claims
Next Block for LTA Claims
1 January 2014 - 31 December 2017
1 Jan 2018 - 31 December 2021
In the current block, an employee can claim LTA for two journeys that have occurred during the period 2014 to 2017. However, if the employee has not made any LTA claims in the current year, then the exemption gets moved to the next year within the current block.
Also, if an LTA exemption is not claimed in the current block, only one LTA claim can be carried over to the first year of the next block. The exemption of the carried forward LTA should be claimed in the first year itself of the next block.
Also, the employee can claim LTA for multiple travels in the same year.
Rules of Exemption
Given below is a list of expenses that is exempted under LTA:
Travel by air: Economy class airfare by the shortest route or amount spent will be exempted depending on whichever is lesser.
Travel by rail: A.C. first class fare by the shortest route or the amount spent on travel will be exempted depending on whichever is lesser.
Place of origin and destination connected by rail but journey performed by other mode of transport
Place of origin and destination not connected by rail (partly/fully) but connected by other recognised public transport system
Place of origin and destination not connected by rail (partly/fully) and not connected by other recognised public transport system also.
Travel Limitations
Given below are the travel limitations applicable under LTA:
- It covers only domestic travel and doesn’t cover international travel. This is because originally it was meant to boost domestic tourism and travel!
- The mode of travel should be either air travel, rail or any other public mode of transport.
When to claim LTA
Before considering claiming for LTA, an employee is advised to check his/her pay structure. The LTA amount can vary from one employee to the other, however, if they’re eligible for LTA, they’ll need to produce original tickets/bills as per the criteria and submit the same to their employer.
Every company will formally announce the dates for LTA claims. They will then need to fill in the applicable forms, attach the documents such as travel tickets, boarding passes, etc., and send them to their HR or accounts team. Documents such as ‘boarding passes’ are needed as proof of the travel, tickets are usually not enough.
Employees should make their LTA claims before their employers make the final calculation for tax liability.
What if claimed amount is lesser than entitled amount?
If an employee is entitled to an LTA amount of INR 30,000 but he/she has claimed only for INR 20,000, the applicable LTA deduction will be for INR 20,000 and the remaining INR 10,000 will be added to his/her taxable income, which will be accountable for tax liability.
Providing Proof of LTA
Employers usually don’t have to submit proof of LTA to tax authorities while assessing LTA claims. Even though it is not mandatory for employers to collect proof of travel from the employees, they still have the right to demand documentary proof, if needed.
The employee is advised to keep proof of their travel such as boarding passes, flight tickets, invoice of travel agent and other documentary proof in case the assessing officer or the employer demands for it.
Also, it is also important for HR to verify that the employee was on leave of absence for the duration for which LTA is being claimed.
