Planning A Year-End Trip Within India This Winter? Claim LTA/LTC And Save Tax

Leave Travel Allowance/Concession (LTA/LTC) is given as part of the salary component by one’s employer to reimburse the actual cost of travel incurred by the employee on travel journeys undertaken by him/her and family during leave. This monetary assistance allows an employee to take privilege or earned leave and go on vacation with family members.

Mihir Tanna, associate director, SK Patodia and Associates, a Mumbai-based CA firm, says that the tax benefit of exemption can be availed in respect of two journeys in specified blocks of four calendar years (current block is calendar year 2022-2025). If the bills are not submitted as soon as the travel is done, tax will be deducted on the said portion.

The current LTA/LTC block is already running (2022-2025), so if you have been accumulating and saving up for a year-end family trip, then it might be a good time to start thinking about the trip and claim your due LTA/LTC. 

LTA/LTC Is Allowed Only For Actual Expenses Incurred Using Shortest Route To Travel Destination

LTA/LTC tax-exemption is only allowed on the travel expenses for the shortest possible route to the destination, irrespective of the mode of transport, but subject to certain conditions. 

CA Ruchika Bhagat, managing director, Neeraj Bhagat & Co, a New-Delhi-based CA firm says that the amount actually spent on the travel will be reduced from the amount received as LTA, and the rest will be taxable, since LTA/LTC is only for the travel expense in India. It does not include any expenses related to food, hotel accommodation, and others.

For instance: If Mr. A has received Rs. 1 lakh as LTA and has spent Rs. 60,000 on air tickets, and the balance Rs. 40,000 on lodging and boarding, then Rs. 40,000 will be taxable.

Here are the allowances acceptable in terms of mode of transportation.

Air (Flight):  If one is travelling by air, then the maximum exemption would be an amount not exceeding the economy air fare of the national carrier by the shortest route to the place of destination.

Rail: The maximum exemption is limited to the cost of AC first class rail fare by the shortest route.

Remote Destination: If the location is not connected through rail, but a recognised public transportation system exists for such a place, then an amount not exceeding the first class or deluxe class fare on such transportation by the shortest route would be available for tax exemption.

If no recognised public transport system exists, an amount equivalent to the air-conditioned first class rail fare, for the distance of the journey by the shortest route, as if the journey had been performed by rail, shall be exempt.

Tanna says that the tax benefit will be subject to the limit of actual amount spent or fare of the shortest route. There is no condition to take a minimum number of leaves to avail the benefit. However, reasonable leave shows genuineness of travel.

One Can Claim Three LTA/LTC In One Block, If Unused LTA/LTC Are There

LTC/LTA exemption is allowed for a maximum of two times in a block of four calendar years. If one has not availed LTA/LTC, then it can be carried forward to the next block of four calendar years.

“If LTA/LTC isn’t claimed in a particular block, then only one can be carried forward to the next block, and it needs to be claimed in the first year of the next block itself. It means we can claim three LTA/LTC in the next block,” Bhagat adds.

LTA/LTC Tax Benefits Limited For Children Born After October 1998. LTA/LTC exemption is available only for actual travel costs incurred within India with family. Here, the family includes spouse, children, dependent parents and siblings. 

Dhaval Selwadia, partner, N.A. Shah Associates LLP, a Mumbai-based CA firm, says that for children born after October 1, 1998, the LTA/LTC exemption is only available for a maximum of two children.

Sujit Bangar, founder, TaxBuddy.com, a tax filing assistance company, said, "Further, in cases of multiple births on the second occasion after having one child is also not affected by this restriction."

You Can Still Claim LTA/LTC Of Last Block In Your Belated Income Tax Return

The last block of LTA/LTC was from January 2018 till December 2021.

So, if you have undertaken any travel last year, for which you have not claimed the same in your income tax return filed this year, then you can still claim that by filing a revised return before December 31, 2022.

Or if you have yet not filed your income tax return for FY 2022, then you can still file a belated return by December 31, 2022 and claim your LTA/LTC.

Says Bhagat: “The benefit of LTA/LTC will be provided by the employer, and Form 16 will be generated accordingly. So, employees can claim this benefit irrespective whether they are filing a normal or a belated ITR.”

Selwadia adds that in order to avail tax exemption, proof of travel like tickets, invoices, boarding passes have to be submitted to the employer along with Form 12BB for them to consider this amount as tax exempt.