What is the tax exemption on your leave travel allowance and how can you claim it? Read answers to these and other important questions to avoid tax outgo.
What are the pre-requisites for claiming tax exemption on my leave travel allowance/assistance (LTA)?
The LTA, or leave travel concession (LTC) in the case of government employees, included in your salary is fully exempt from income tax, provided you take leave for the minimum stipulated period, typically between five and eight days. To be eligible for this tax benefit, you have to journey within India and the exemption is limited to the fare component (see chart). Hence, the expenses on hotels, food, sight-seeing, etc, are not considered. In the event that you fail to get public transport and are forced to rent a car, you can submit the bill issued by the rental company, which is accepted as valid proof by many organisations. This exemption is available only on the sum actually spent on travel by an employee, subject to the maximum amount of LTA payable to him.
How does one claim this benefit?
This exemption can be claimed by submitting proof of travel—boarding passes, tickets and rental receipts—to the accounts department at your workplace and the employer will certify the LTA exemption in Form 16. Though there is no prescribed form to do so, the process of making a claim does not differ across organisations. Also, filing your return online will have no bearing on this tax benefit.
If you forget to submit proof of travel and your employer deducts tax on the LTA amount, you can claim exemption in your income tax return and you will get a refund.
As per a Supreme Court judgement dated 21 January 2009, employers are under no statutory obligation to collect travel bills from their employees to allow LTA tax exemption. However, don’t junk your travel bills, receipts and tickets in a hurry because most organisations still demand proof for providing exemption.
How often can I claim exemption?
The LTA exemption can be claimed only once in a year and twice in a block of four calendar years, irrespective of when you start your employment. The current block is 2006-9, so you can claim tax exemption for a journey undertaken before 31 December 2009 any time before March 2010.
“If you claim your travel expense after the end of the financial year, it will be treated as an expense of a prior period in the hands of the employer, which is not allowed as deduction from the profits of the employer,” cautions Diljeet Titus, founder, Titus and Co, a leading law firm.
What are my options if I am unable to claim exemption in the current block?
If you fail to claim exemption in a particular block, one journey can be carried forward and claimed in the first calendar year of the succeeding block. In the current context, the next block will be January 2010 to December 2013. This means you can avail of three exemptions in the next block, but the one-journey-per-year rule will still apply. Says Titus: “If you don’t claim this benefit, the LTA amount will be added to your salary and taxed at the normal rate.”
Can I claim tax benefit for my family’s travel expenses too?
Yes, the LTA tax exemption applies to your family too, as long as the members travel with you. However, the word ‘family’ covers only your spouse and two children as well as parents, brothers and sisters who are dependent on you.
How can spouses, both of whom get LTAs from their employers, claim exemption?
In such cases, both husband and wife can claim LTAs individually twice in a block of four years from their respective employers. This means they can enjoy tax-free holidays four times in four years. However, for a holiday taken jointly by the couple, only one spouse can claim LTA exemption.
Says Kartik Varma, co-founder, iTrust Financial Advisors: “Couples can also consider splitting a journey’s cost to make the most of the tax benefit.” Consider a couple entitled to an LTA of Rs 10,000 each and they take a Delhi-Kochi-Delhi flight costing about Rs 20,000. If either spouse chooses to make a claim for the entire journey, he or she would have to shell out Rs 10,000 from his/her own pocket. So it would make sense for them to consider booking their own tickets.
Can I claim exemption for partjourneys if my itinerary includes international destinations?
It is possible to claim exemption for part-journeys as long as the tickets are purchased sector-wise, which clearly demarcates the domestic leg of the journey. Consider a Kolkata-Mumbai-Dubai flight. You would have to buy separate tickets for Kolkata-Mumbai and Mumbai-Dubai legs to be eligible. A mere stopover in Mumbai won’t qualify.
Many travel facilitators now help integrate foreign holidays with LTA plans without letting you lose out on the tax benefit. Says a Yatra official: “The maximum exemption offered for an air journey is economy class fare of the national carrier by the shortest route. The normal economy fare for Delhi-Thiruvananthapuram-Delhi route for Indian airlines is over Rs 45,000 while advance purchase, non-refundable fares can fall to as low as Rs 18,000.
Imagine how easy it would be for a travel agency to offer a package to Colombo for Rs 45,000 by capitalising on apex fares.” From Air India Holidays’ ‘Far East LTC Bonanza’—where the price of a Delhi-Port Blair-Delhi economy ticket includes a visit to Pattaya, Bangkok and Singapore— to Sharp Travels’ Delhi-Bangkokvia-Thiruvananthapuram package, you have a lot of LTA tours to choose from.
