The ins and outs of leave travel allowance LTA

The ins and outs of leave travel allowance

The whole object of travel is not to set foot on foreign land; it is at last to set foot on one's own country as a foreign land.
— G K Chesterton


To be in sync with the quote, which expresses the importance and pleasure of exploring your own country, the government too wants to promote inland tourism. Accordingly, it has provided for tax benefits in respect of leave travel allowance (LTA) received from your employers.

Here, I will explain the present provision of LTA.

This tax benefit is available only to employed persons, not to self-employed ones. You can claim tax benefits on the LTA received from your present or past employer on fulfillment of certain conditions.

The exemption can be claimed under two conditions — first, you can claim it when you are continuing in your present employment and proceed on leave to any place in India.

The other condition is when you travel to any place after your retirement from the services or on termination of services. This benefit on retirement can be claimed every time you leave one employment and move to other location to take up another employment. So the retirement for this purpose not only includes the mandatory retirement on reaching the age of superannuating, but also includes leaving one employment to take up another employment at different location.

For whom you can claim LTA?
You can either travel alone or with your family. However, no LTA benefit can be claimed for your family if it travels without you.
Moreover, you need to be on leave on the days of travel. You cannot claim the benefits of LTA in respect of your spouse or children if you take them along with you on your official trip, this is when you are not on leave.
Family for the purpose of claiming LTA exemption includes spouse, children whether dependent on you or not and parents, brothers and sisters who are wholly or mainly dependent on you. The income-tax law provides that you can claim this LTA exemption benefit in respect of two children only.

How frequently can you claim it?
You can claim LTA exemption twice in the block of four calendar years. This block is not calculated with reference to commencement of your employment but is predefined by the law. The current block has begun from January 1, 2010 and will end on December 31, 2013. The next block will be from 2014 to 2017, and so on. It is not necessary that you claim the LTA exemption in alternate years, what is required is that you can not claim it more than two times in the defined block of four years. In case you and your spouse both are working, your family can travel every year and claim the tax benefit of LTA every year for two different calendar years in case of both of you. The only restriction is that you can not claim LTA exemption for the same journey.

Can LTA benefits be carried forward?
What if you could not fully claim LTA / LTC exemption for some reason during the block 2006-2009? It can be carried forward to the first year of the next block of four years. Thus, in the current block of 2010 to 2013, you can claim the benefits of your arrears of LTA during the calendar year 2010 without affecting your right to claim two LTA exemptions in balance three years of the same block.

What amount can be claimed?
The tax benefit is available only in respect of cost of transportation incurred by you on travelling in India. It is not available for expenses of stay in hotel or local conveyance for sight seeing etc.

In case you are going on a foreign trip, you can claim the expense of travel from your place to the point of departure from India for undertaking the foreign travel and back.
The exemption is restricted to actual expenses incurred by you in undertaking the journey from the starting point to farthest destination. However, there is a cap on maximum amount you can claim in respect of LTA exemption. The restrictions are dependent on the mode of transport (see table).
If there is no such recognised public transport system operating on that route, you can claim a fare equivalent to air-conditioned first class fare for the distance between your place to the destination by shortest rail route.
The exemption is available for the farthest place by shortest route when a circular journey is undertaken.

Do you need to preserve proof of your travel?
You need to preserve the tickets to claim this income-tax benefit. If you hire a car, the receipt/ invoice from the travel agency or car rental agency is considered valid proof. Even if your employer does not verify and collect the proof of the expenses in respect of LTA, you are under obligation to produce it before the assessing office at the time of your income-tax assessment.