Many companies integrate Leave Travel Allowance (LTA) into employees’ Cost-to-Company (CTC) packages. Employers provide LTA to cover their employees’ travel expenses during leave. LTA qualifies for tax exemption under the old tax regime as per the Income Tax Act, 1961. According to Section 10(5) of the I-T Act, this allowance does not contribute to an employee’s net income for the fiscal year.
Distinguishing Between Exemptions and Deductions
Salaried individuals receive tax exemptions in addition to deductions available under various Sections of the Income-Tax Act, 1961. While tax deductions encompass expenses related to specific categories that taxpayers can deduct from their taxable income, exemptions represent specific amounts that are entirely untaxed.
Employers structure employees’ CTC packages in a tax-efficient manner, often incorporating an LTA provision.
Procedure for LTA Claiming
The LTA claiming process varies from one company to another, as not all employers include this allowance in their CTC structure. Even when LTA is part of employees’ CTC, employers typically set a deadline within which their staff must claim the LTA amount. To process the LTA, employers require proof of travel, such as flight or train tickets, invoices, etc., along with a mandatory declaration.
Eligibility and Regulations:
LTA is reimbursed based on the actual travel expenses incurred by an employee, whether by air, rail, or road. Employees must provide valid proof of expenses to claim LTA. It does not cover food or other hotel stay expenses, focusing solely on actual journey costs.
According to income tax laws, LTA can be claimed only for travel costs within the country; international trip expenses are not included.
LTA can be claimed twice in a block of 4 years, as determined by the government. Block years for LTA claims are distinct from financial years and cannot be randomly selected.
LTA covers travel expenses for the employee alone or with their family, including spouse, children (up to 2), dependent parents, brothers, and sisters.
Documents Required for LTA Claiming
Employees, if eligible, must submit specific documents to claim LTA and obtain tax exemption for their travel expenses. These documents typically include travel bills, such as bus, train, or rail tickets, and original taxi bills for car travel.
Unclaimed LTA:
If LTA is included in an employee’s CTC structure, they will receive the LTA amount within the specified timeframe. However, if the employee does not travel or fails to provide valid proof of travel, they cannot claim the exemption benefit. In such cases, the company is obligated to deduct tax from the LTA amount and remit it to the income tax authorities.
