Leave Travel Allowance (LTA) Exemption under Section 10(5) read with rule 2B

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Leave Travel Allowance (LTA) Exemption under Section 10(5) read with rule 2B:

All of the salaried employees wants to know about LTA as LTA is the generally included in the salaries by the employers due to the tax benefits attached to it. An LTA is the remuneration paid by an employer for Employee’s travel in the country, when he is on leave with his family or alone. The Person who is claiming the LTA must be on leave in order to claim the exemption. LTA amount is tax free under Section 10(5) of the Income-Tax Act, 1961, read with Rule 2B.

Leave Travel Allowance (LTA) Exemption under Section 10(5) read with rule 2B

Below are few important aspects of LTA which a Salaried Employee wants to Know:

LTA exemption can be claimed where the employer provides LTA to employee for leave to any place in India taken by the employee and their family.

Exemption to be provided for the Fare only

The Exemption is provided only for the Travelling Cost. i.e. Hotel Cost and other Expenses are not allowed only travel cost is Exempt. Therefore,

ScenarioEligible Exemption
If journey performed by AirEconomy Air fare of National carrier by the shortest route or the amount spent whichever is less is Exempt.
If journey performed by RailA.C. first class rail fare by shortest route. Or amount spent whichever is less is exempt.
Place of origin and destination place of journey connected by rail but journey performed by other mode of transportA.C. first class rail fare by shortest route or amount spent whichever is less.
Place of origin & destination not connected by rail (partly/fully) but connected by other recognized Public transport systemFirst class or deluxe class fare by shortest route or amount spent whichever is less.
Place of origin & destination not connected by rail (partly/fully) and not connected by other recognized Public transport system alsoAC first class rail fare by shortest route (as the journey had been performed by rail) or the amount actually spent, whichever is less.

Travel within India only allowed

Travel has to be undertaken within India and overseas destinations are not covered for exemption.

Exemption on Actual Travel Expense

For example, where an employer provides LTA of Rs 55,000, but an employee spends only Rs 40,000 on the travel cost, then the exemption is limited to only Rs. 40,000. Travel cost means the cost of travel and does not include any other expenses such as food, hotel stay etc.

What is the meaning of Family for LTA Exemption

The meaning of ‘family’ for the purposes of exemption includes spouse and children and parents, brothers and sisters who are wholly or mainly dependent on you. An individual would not be able to claim the exemption in relation to his parents, brother or sisters unless they are wholly or mainly dependent on the individual.

Restriction on Number of Child for Claiming LTA

Further, exemption is not available for more than two children of an individual born after October 01, 1998. This restriction does not apply in respect of children born before this date, and also in cases where an individual, after having one child, begets multiple children (twins or triplets or quadruplets, etc.) on the second occasion. The term “Child” includes a step-child and an adopted child of the individual.

Can I Claim the LTA in case of Switch of JOB

If you switch jobs, you can get the LTA not only from your present organization but also from your former employer, if the concession is lying unutilized. Let’s say that, in the 2010-13 block, you claimed LTA in 2010. In 2012, you switched jobs. You can still claim your second journey with your new employer. Of course, your new employer will ask to look at your earlier tax returns to see whether it has been claimed or not.

Can I Claim the exemption every year

No. The tax rules provide for an exemption only in respect of two journeys performed in a block of four calendar years. The current block runs from 2014-2017. If an individual does not use their exemption during any block on any one or on both occasions, their exemption can be carried over to the next block and used in the calendar year immediately following that block.

In such cases, the journey performed to claim such exemption will not be counted for the purposes of regulating future exemptions allowable for the succeeding block. For example, Mr. X joins an organization on April 1, 2011 and is entitled to a LTA of Rs 30,000 per annum (financial year 2011-12). X undertook a journey in December 2011 and used his exemption. However, for his LTA entitlement for 2012-13, he did not undertake a journey during the calendar year 2012.

He can undertake the journey in 2014 to claim the exemption in relation to the LTA. He would also be able to use the LTA benefit for two other journeys which he can undertake in the current block 2014-17 in relation to his LTA entitlement for future years.

Does claiming LTA in alternate years mean that the two year entitlement gets added together

It does. If you are entitled to an LTA of Rs.10,000 per year and do not utilize it for the the first year it is carried forward to the next year. In the second year you can claim the entire amount (Rs.20,000) as tax exempt provided you spend it according to the specification in LTA tax laws as detailed above.

Carry over concession for Leave Travel Allowance

Leave Travel Allowance (LTA) comes with a carry forward feature. You can carry forward your Leave Travel Allowance in the situation that it has not been used. It can be brought forward and claimed in the first year of the next block.

Can I Claim LTA Twice in a Year

Though you can claim two journeys in a block of four years, you can claim the LTA benefit just once in a year. You cannot claim both the journeys in one year. So, while a person can get an income tax exemption for two journeys in a block of four calendar years, he can make a trip only once a year. If you make two trips in a year, you lose one. One way out is to claim one and make your spouse claim the other in case your spouse is also working.

LTA in case person who is claiming the LTA is not Travelling

No, LTA cannot be claimed for the family if you as a claiming person are not included in the travel.

Can a husband-wife duo claim LTA

Yes, both the spouses can claim the exemption on LTA from their employers. However, both of them cannot claim for the same journey.

Proof of travel 

Case Law : Supreme Court has held in the case of Larsen & Toubro and ITI that employers are under no statutory obligation to collect bills and details to prove that the employees had utilised the amounts obtained against these claims on travel and related expenses. Employers while assessing the travel allowance claims, do not need to collect proof of travel to submit to the tax authorities. Though it is not mandatory for employers to demand proof, they still have the right to demand documentary proof depending on its policy. The Judgement of Supreme Court has only moved the responsibility from the employer to the employee, the assessing officer can still ask for the employee to provide details of travel. However below mentioned amendment was introduced by Finance Act 2015

Amendment : Finance Act 2015 amended Section 192 and as per Section 192(2D) of Income Tax Act 1961 the person responsible for making the payment of salary shall, for the purposes of estimating income of the employee or computing tax deductible at source, obtain from the employee the evidence or proof or particulars of prescribed claims (including claim for set-off of loss) under the provisions of the Act in such form and manner as may be prescribed.

Circular : Also as per Circular No. 8/2013 dated 10-10-2013 The employer has to satisfy the obligation that leave travel (fare) concession is not taxable in view of section 10(5) the employer is not only required to be satisfied about the provisions of the said clause but also to keep and preserve evidence in support thereof. Conclusion : Finance Act 2015 has held that responsibility of collecting evidence/ proof/ particulars for deductions/ exemptions/ allowances/ set-off of loss claimed by the employee is of Employer.

Accordingly Employer is now responsible for Collecting proof of LTA as well.

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