LTA – Leave Travel Allowance, Income Tax Rules Explained
LTA is leave travel allowance meant for making tax exempt holiday once in period of two years with or without family. Air travel, train ticket cost (economy or first class AC), hotel and taxi bills within India (no abroad) are allowed. Full LTA that is part of CTC can be claimed with receipts.
LTA is the short form for Leave Travel Allowance. It is part of your CTC and can be used to make your travel costs tax-free legally in the Indian Taxation system.
Although it is good that a salaried person is exempted from paying tax on the amount, he spends on travel expenses of his family, he can only do so twice in a block of 4 years.
There are other restrictions too with respect to claiming LTA and we discuss them here.
LTA Terms & Conditions
Only travel fare i.e. either by Air, train or bus qualifies for exemption.
No food, hotel, sightseeing, etc. expenses are allowed for a claim in LTA.
You can hire a taxi if there is no train, air or bus travel option available to your destination.
#Travel outside India
Thinking of a vacation in Bangkok? Forget LTA!
LTA tax exemption is only allowed for travel expenses to a destination within India.
FYI, Andaman and Nicobar islands are part of India.
You can take your dependent parents, dependent siblings, spouse, and two children.
All their travel expenses will be exempted.
Tax exemption can only be claimed for economy class airfare, first-class AC rail fare, or first/ deluxe class bus fare.
#LTA tax exemption Limit
The full amount as specified in your CTC letter or given by your employer is exempt if you can provide the bills for it.
Note that only Travel expenses can be claimed.
#Carry forward your unspent LTA
If you have not claimed your LTA in the first year, the amount is accumulated in your kitty.
Hence, you can claim a higher amount if you travel next year.
Year 1 amount + year 2 amount is available for the LTA tax exemption claim in year 2.
#Double Dip LTA
If both husband and wife are receiving LTA from their respective employers, then they both can claim LTA in the same year but for DIFFERENT journey’s.
One journey on which both husband and wife traveled cannot be claimed twice separately, even though they work in different companies.
There is no mechanism to verify this but, it is illegal to do so.
If caught by the income tax officer, you can be penalized.
LTA Bouquet of Benefits
Some companies have the option of specifying your own LTA amount in the various kitty of allowances as per your preferences. It is generally called Bouquet Of Benefits (BoB). In this case, they fix the total amount of BoB and leave the various allowance figures for you to decide.
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This is generally done to give you a free hand on what you think is the best for you to save tax.
For e.g. A common BoB could be something like this:
|Component||Month/ Annual||Max. Tax Exemption|
|House Rent Allowance (HRA)||7k/84k||Depends on Basic Salary and city of residence.|
|Conveyance Allowance||800/9.6k||Max 800 per month|
|Medical Allowance||1.25k/15k||Max 1.25k per month|
|Food Coupons||2k/24k||Max 3000 per month|
|LTA||1k/12k||No Maximum limit|
|Personal Allowance||11k/131k||FULLY Taxable|
In this example, there are various tax saving options via different kinds of allowances including LTA. If you look at the structure carefully, there is an allowance called Personal allowance which is FULLY taxed.
Now, the point I am trying to make here is that all other allowance (except personal allow. – which is FULLY taxed), have a maximum limit for tax exemption. Hence, you can use LTA for your advantage and declare it as the maximum value after consuming the maximum amount of other expenses and then reducing personal allowance.
You may argue that you may NOT travel and hence would not be able to claim any tax benefit.
I would say that it won’t make any difference even if you declare it and not claim it. But if you do NOT declare it, you are anyway going to be taxed on personal allowance amount and cannot claim in case you do travel!
This is also the reason behind saying that consume all other tax-saving allowances to their maximum before increasing LTA.
So, I would say that this should be the ideal BoB for this example:
|Component||Monthly/ Annual||Max. Tax Exemption|
|House Rent Allowance (HRA)||7k/84k||Depends on Basic Salary and city of residence. Max. value utilized|
|Conveyance Allowance||800/9.6k||Max 800 per month utilized|
|Medical Allowance||1.25k/15k||Max 1.25k per month utilized|
|Food Coupons||3k/36k||Max 3k per month utilized|
|LTA||11k/131k||No Maximum limit. FULL BoB limit utilized|
|Personal Allowance||0/0||FULLY Taxable|
I hope this will clarify lot of queries about LTA in your mind.
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