Leave travel allowance and taxes: What you need to know

LTA, or leave travel concession, is an allowance included in the salary package of employees, designed to cover travel expenses incurred during leave. It forms a part of the employee's cost to the company (CTC) and is typically provided as an annual benefit. The unique aspect of LTA is its tax-exempt status under certain conditions, as outlined in Section 10(5) of the Income Tax Act, 1961. This exemption allows employees to deduct LTA from their taxable income, leading to potential tax savings.

• The travel must be within the geographical boundaries of India.
  
  
• The exemption is applicable only to the actual travel expenses incurred and does not cover auxiliary costs such as accommodation, food, or shopping, while the mode of travel must be bus, economy airline or train.
  
  
• It covers the travel expenses of the employee and their immediate family, which includes the spouse, children, and wholly dependent parents, brothers, and sisters.
  
  
• The exemption for children is limited to two surviving children born after October 1, 1998. This limitation does not apply to children born before this date or in cases of multiple births after the first child.
  
  
• Valid documentary proof of travel, such as tickets and a declaration form, are essential for claiming the exemption.
  
  

In response to the pandemic and to encourage economic activity, the government introduced the LTC Cash Voucher Scheme. Extended into 2023, this scheme allows employees to claim tax exemptions on certain purchases. It offers an alternative to the traditional LTA, especially beneficial during times when travel may not be possible or advisable. The scheme provides cash vouchers for the purchase of specific non-food items, subject to a GST rate of approximately 12%, thus offering a different avenue to avail tax benefits. However, employees can only buy goods and services until March 31, 2023 (as the LTC scheme benefit is only available for the year block 2018-2021), with certain relaxations allowed.

The LTA exemption is available for two journeys within a block of four calendar years. The current block period is 2022-2025. It's important to note that if the exemption is not utilised within a block, it cannot be carried forward to the next one.

LTA eligibility is broad, encompassing all employees, whether in the public or private sector. There is no stipulated waiting period from the date of joining an organisation to become eligible for LTA. The coverage amount and conditions, however, are determined by the employer and are typically included in the final settlement when an employee leaves the organisation.

With LTA, salaried individuals have a way to reduce their travel expenses while availing of tax benefits. Proper understanding and planning are key to maximising the benefits offered by LTA. As tax laws and benefits are subject to change, staying informed about the latest developments is crucial.


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