LTA tax exemption - Section 10(5) of the Income Tax Act.

What is LTA?

LTA is an allowance or assistance received from the employer to employee to travel with his family on leave. Section 10(5) of the Income-Tax Act, 1961, read with Rule 2B, provides for the exemption and outlines the conditions subject to which LTA is exempt from income tax.

What is Exemption?

The amount exempt under section 10(5) is the value of any travel concession or assistance received by, or due to, him,—

(a)  from his employer for himself and his family, in connection with his proceeding on leave to any place in India ;

(b) from his employer or former employer for himself and his family, in connection with his proceeding to any place in India after retirement from service or after the termination of his service,

It means the amount received during employment and also after retirement or termination of the service is also exempt from tax if the other conditions are satisfied.

Family: who all are covered?

The family can comprise spouse, two children, brothers, sisters and parents, if they are wholly or mainly dependent on individual. This restriction of two children will not however apply in respect of children born before October 1, 1998, and also in cases where an individual, after getting one child, begets multiple children (twins/triplets/quadruplets, etc.) on the second occasion.

What you are entitled to claim?

Only the actual expenses incurred on travelling with your family within the country can be claimed as exemption under Section 10(5), expenses on hotel rooms, sightseeing, food, etc, cannot be included with this. 

The quantum of exemption is also subject to the following maximum limits, depending upon the mode of transport used or available:

1. Journey performed by Air - Economy Air fair of National carrier by the shortest route or the amount spent whichever is less will be exempt 

2. Journey performed by Rail – A.C. first class rail fare by shortest route or amount spent whichever is less will be exempt.

3. Place of origin and destination place of journey connected by rail but journey performed by other mode of transport - A.C. first class rail fare by shortest route or amount spent whichever is less.

4. Place of origin& destination not connected by rail(partly/fully) but connected by other recognisedPublic transport system - First class or deluxe class fare by shortest route or amount spent which ever is less.

5. Place of origin& destination not connected by rail(partly/fully) and not connected by other recognised Public transport system also – AC first class rail fare by shortest route (as the journey had been performed by rail) or the amount actually spent ,whichever is less.

The amount of LTA claimed should be equal to or lower than the LTA component in your salary structure. If the LTA exemption claimed is less than LTA component in the salary, the balance will be taxed as per your income tax bracket. 

When can you claim?

The exemption can be availed only in respect of two journeys performed in a block of four calendar years. For this purpose, the first four-year block commenced with the calendar year 1986. The current block is 2010 to 2013. You can claim for two journeys in the same year, provided you make no more LTA exemption claims for the rest of the block. 

If an assessee has not availed travel concession or assistance during any of the specified four-year block periods on one of the two permitted occasions, or on both occasions, exemption can be claimed provided he avails the concession or assistance in the calendar year immediately following that block. This is popularly known as the 'carry-over' concession. This carry over concession is available only for one journey. In such cases, the exemption so availed will not be counted for purposes of regulating the future exemptions allowable for the succeeding block of four years. That means in such cases you can claim exemption for three journeys in that block of four years. 

How to make a claim?

A written submission can be submitted to the employer with the travel details and amount spent to claim the exemption. As per the Supreme Court ruling in the case of Larsen & Toubro and ITI the 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 expenses. Even though the employer can ask their employees to furnish proof of travel depending upon their policies. If the employer does not allow the exemption at the time of tax deduction, employee can claim the deduction at the time of filing the return.