The Income-tax Act of 1961 provides various tax exemptions for salaried individuals, in addition to deductions like LIC premiums and housing loan interest. While deductions lower your total taxable income, exemptions exclude certain types of income from taxation entirely. This enables employers to structure an employee’s Cost to Company (CTC) package in a tax-efficient manner.

One commonly used exemption available to the salaried class under the law, and widely utilized by employers, is Leave Travel Allowance (LTA) or Leave Travel Concession (LTC). The LTA exemption also applies to LTA received from a former employer regarding travel after retirement of service or termination of service. LTA can be claimed for any two years within a block of four years. The current block year for claiming LTA is from 2022 to 2025.

What is Leave Travel Allowance (LTA)?

Leave Travel Allowance (LTA) or Leave Travel Concession is an allowance provided by an employer to their employee for traveling to any destination within India, whether it be during leave, after retirement, or following the termination of service. While it may seem straightforward, several factors must be considered before claiming an LTA exemption. Income tax provisions have established rules for claiming LTA exemption, which are outlined below.

Who Can Claim LTA?

Only individuals can claim LTA for travel expenses incurred for themselves and their family members, including their spouse, children, and wholly or mainly dependent siblings and parents.

Conditions for Claiming LTA:

Let’s review the conditions and requirements for claiming the exemption:

1. Actual journey is necessary to claim the exemption.
2. Only domestic travel within India is considered for exemption; international travel is not covered under LTA/LTC.
3. The exemption for travel is available for the employee alone or with their family, where ‘family’ includes the employee’s spouse, children, and wholly or mainly dependent parents, siblings.
4. Additionally, the exemption is not available for more than two children of an employee born after October 1, 1998. However, children born before this date are not subject to any restrictions. Moreover, in cases of multiple births on a second occasion after having one child, this restriction does not apply.

Amount of LTA/LTC Exemption

The exemption is applicable only to the actual travel costs incurred by the employee, such as airfare, rail fare, or bus fare. Expenses like local conveyance, sightseeing, hotel accommodation, food, etc., are not eligible for this exemption. Furthermore, the exemption is limited to the LTA provided by the employer.

For example, if the LTA granted by the employer is Rs 30,000, and the actual travel cost incurred by the employee is Rs 20,000, then only Rs 20,000 will be eligible for exemption, and the remaining Rs 10,000 will be included in the taxable salary income.

Exemption Regarding Various Modes of Transport

Can LTA Exemption be Claimed on Every Vacation?

No, an LTA exemption is available for only two journeys performed in a block of four calendar years.

Block Year

A block year is distinct from a financial year and is determined by the Government for LTA exemption purposes. Each block comprises four years. The initial four-year block began in 1986. The list of block years includes 1986-1989, 1990-93, 1994-97, 1998-2001, 2002-05, 2006-09, 2010-13, and so forth. The current block applicable is 2022-25. The previous block was for the calendar years 2018-21.

Carryover of Unclaimed LTA/LTC

If an employee hasn’t utilized the exemption for one or two journeys within any block of four years, they can carry over such exemption to the next block, provided they avail this benefit in the first calendar year of the immediately succeeding block.

Consider the following example for a better understanding:

– Where carryover exemption is claimed in the first calendar year of the immediately succeeding block

• Where carryover exemption is not claimed in the first calendar year of the immediately succeeding block

Exe exemption to the next block, provided they avail this benefit in the first calendar year of the immediately succeeding block.

Consider the following example for a better understanding:

– Where carryover exemption is claimed in the first calendar year of the immediately succeeding block

• Where carryover exemption is not claimed in the first calendar year of the immediately succeeding block

Procedure to Claim LTA

The procedure to claim LTA generally varies depending on the employer. Employers typically specify a deadline by which employees can claim LTA and may require employees to submit proof of travel, such as tickets, boarding passes, or invoices provided by travel agents, along with a mandatory declaration. While it’s not mandatory for employers to collect proof of travel, it’s advisable for employees to keep copies for their records and to submit them to the employer based on the company’s LTA policy or to tax authorities upon request.

Multi-Destination Journey

Income tax provisions provide exemption for travel costs incurred for leave to any place in India. Conditions regarding the mode of transport also specify the journey from the ‘origin’ to the ‘destination’ and the route, which must be the shortest available route.

Therefore, if an employee travels to different places during a single vacation, the exemption can only be claimed for the travel cost from the place of origin to the farthest destination in the vacation via the shortest possible route.

LTA Exemption for Vacation on Holidays

Some organizations strictly adhere to the wording of the income tax provision and only allow employees to claim LTA if they apply for leave and travel during that time. Such organizations may reject LTA claims for travel on official holidays or weekends.