If you aren’t sure how to make optimal use of your leave travel allowance, then rest easy! We’ll give you the lowdown right here!
Almost everyone loves a vacation every now and then so they can take a break from their monotonous lives. However, when it comes to vacations, many aren’t aware of how to make the best use of their leave travel allowance. One can utilise leave travel allowance not just for travel reimbursements, but to even claim tax benefits.
Usually, employees check the rebates available under popular sections like 80C of the Income Tax Act. However, many end up overlooking the exemption offered against leave travel allowance.
Let us take a look at various aspects of LTA and ways to utilise it optimally.
Understanding Leave Travel Allowance
Leave travel allowance is an allowance that employers pay to employees as part of their salary. Employees use this provision to meet their vacation or travel expenses. It is the prerogative of the employer to offer LTA to all permanent employees of the company.
Most companies offer LTA to employees who have completed a minimum of one year with the company. Employers pay leave travel allowance or LTA as part of the CTC salary just like HRA and medical allowance. The total LTA for each employee is calculated on a yearly basis. However, employees may even receive it as a part of their monthly salary.
Additional Reading: LTA Explained
Leave Travel Allowance and Tax Saving
Leave Travel allowance not only reimburses the money spent while travelling with the family, the amount allocated for LTA is also tax-free and offers tax benefits under Section 10(5) of the Income Tax Act. Any travel expense that one incurs on international travel is not a part of the LTA allowance coverage. LTA allowance is only offered for economy class airfare, first class AC rail fare or first or deluxe class bus fare.
If the employee, along with his family, travels in any superior class, then the expenses will not fall under the LTA allowance cover. Travel allowance is permitted for immediate family members including spouse, children, and dependent parents. Only two children born after October 1, 1998, are allowed for LTA allowance cover.
LTA Four Year Block
Employees can claim leave travel allowance for any two journeys undertaken in a block of four consecutive years. The current block for LTA exemption is from 2018 to 2022. The previous LTA four year block ran from 2014 to 2017.
There is, however, an exception to the rule in case the employee claims only 1 LTA in one block. He or she can carry forward the claim to the next four-year block, claiming a total of three LTAs in that block.
For example, if an employee claims an LTA exemption in 2014, then he or she would be able to claim only one more LTA till 2017. It is imperative to note that the four-year blocks are taken as per calendar years and not financial years. The four-year blocks run from January, ending on 31st December for each year.
One good thing about LTA tax exemption is the fact that one can carry forward unclaimed LTA to the next block.
Additional Reading: 5 Popular Travel Credit Cards Of 2018
Filing LTA Tax Exemption
Generally, every employer has their own rules for employees to claim LTA. In order to claim an LTA tax exemption, employees need to submit a written declaration of the amount utilised for travelling purpose for the particular block period.
While there is no rule that requires an individual to submit evidence like travelling tickets and other bills, filing fraudulent LTA would offset any LTA tax exemptions and the whole amount would be fully taxable as per the income tax bracket the individual falls under. In case both husband and wife are eligible for LTA tax exemption, they can both file for LTA tax exemption individually, but not for the same journey.
If an individual is travelling to several locations during a single vacation, he or she can claim LTA exemption only for travel costs that he bore for travel from the place of origin to the farthest place travelled to during the vacation by the shortest possible route.
LTA exemption for vacation on holidays
Many employers follow the provisions of the Income Tax Act to the T. They only allow employees to claim LTA as long as they had applied for leaves and travel during that time. Such organisations may reject LTA claims for travel on official holidays or weekends.
Additional Reading: Travelling Soon? Don’t Forget To Pack Travel Insurance
Working Illustration and Conditions for LTA:
Let us try and understand the concept of LTA as well as ways to optimally use LTA allowance through a working illustration.
Let us assume Rahul has an annual salary of Rs. 7, 00,000. After all the basic deductions from CTC including House Rent Allowance (HRA), medical bills and all the savings and tax benefits available under Section 80C , his annual taxable income comes to Rs. 1,50,000.
Let us also assume that Rahul’s annual salary includes LTA of Rs. 50,000. If Rahul’s travel satisfies all the aspects of LTA, he can avail a tax benefit for the entire LTA amount. Also, Rahul would be eligible for tax benefit if he has not availed two or more LTAs in a block of four years. If Rahul satisfies all the conditions, his taxable income will reduce to Rs. 1, 00,000.
Let us also assume that Rahul was eligible for an LTA of Rs. 10,000 in the block from 2014 to 2017. Assuming Rahul did not claim tax exemption for that particular block, Rahul can claim the same in the tax block running from 2018 to 2022.
Hopefully, this should serve as an eye-opener with regards to how to make the most of your LTA. After all, knowledge is power.