Salaried taxpayers alert: You can’t claim LTA under New Tax Regime; check details

Starting FY 2025-26, taxpayers in India can choose between two income tax systems: the old tax regime, which offers a range of deductions and exemptions, and the new tax regime, which promises lower tax rates but does away with most of these benefits.

The new regime, effective from April 1, 2025, has become increasingly appealing, especially for those with net taxable incomes up to Rs 12 lakh. Under the revised structure, such taxpayers now pay zero tax, making it a compelling option for many.

This shift has led to a common query among salaried individuals—can Leave Travel Allowance (LTA) still be claimed under the new tax regime? LTA is often included in salary packages and can be used to claim tax exemption for travel expenses under the old regime. However, with the simplified structure of the new regime removing most exemptions, many are unsure if LTA benefits still apply.

LTA is not allowed under the new tax regime introduced via Section 115BAC. Despite repeated appeals to reinstate it, the government has maintained its stance—prioritising simplicity, fixed tax slabs, and fewer exemptions. Under the old regime, taxpayers could claim LTA twice in a block of four years for domestic travel expenses. However, since the new regime removes most exemptions in exchange for lower tax rates, LTA no longer qualifies for tax relief.

CA Niyati Shah, Vertical Head – Personal Tax at 1 Finance, explained that LTA is a document-heavy, claim-based exemption that doesn’t align with the new regime’s streamlined design. While this may seem like a downside for frequent travelers, many taxpayers with limited deductions may still find the lower rates under the new regime more beneficial overall.

"LTA exemption remains unavailable under the new tax regime. Despite growing demands for its inclusion, the government has maintained a streamlined approach under Section 115BAC, offering lower tax rates in lieu of foregoing several traditional exemptions - including LTA. While the old regime rewarded salaried individuals for travel within India by allowing LTA tax exemption twice in a block of four years, the new regime is designed around simplicity and transparency, with fixed slabs and minimal deductions. LTA, being a claim-based, document-driven exemption, doesn’t align with this philosophy," said Shah.

While this may seem like a disadvantage to frequent domestic travellers, the trade-off lies in lower tax rates and ease of filing. For many taxpayers, particularly those with limited investments or deductions, the new regime may still yield greater net tax savings despite the absence of an LTA exemption.

In case you are not eligible for the exemption in the New Tax Regime, any LTA included in your salary will be considered as part of your taxable income and subject to appropriate taxation. Even if you provide travel receipts for your trips, it will not result in a reduction in your tax liability under the new regime.

If you are employed in the private sector and wish to avail the LTA exemption, you must choose the old tax regime for the financial year 2025-26. The old regime permits this exemption under Section 10(5) of the Income Tax Act, but certain conditions must be met in order to claim it.

"Ultimately, choosing between the old and new regimes requires a holistic evaluation of one's salary structure, eligible exemptions, and lifestyle patterns. Employers too must adopt a proactive stance in salary restructuring to balance compliance with tax efficiency - especially when key exemptions like LTA remain exclusive to the old regime," Shah added.