Categories: Finance

LTA – Leave Travel Allowance, Income Tax Rules explained

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 Indian Taxation system.

Although, it is good that 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 and conditions for Tax exemption

Terms Meaning
Travel Expenses Only travel fare i.e. either by Air, train or bus qualifies for exemption.
No food, hotel, sightseeing etc. expenses are allowed for 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.
Family You can take you dependent parents, dependent siblings, spouse and two children.
All their travel expenses will be exempted.
Luxury Travel Tax exemption can only be claimed for economy class air fare, first class AC rail fare or first/ deluxe class bus fare.
LTA tax exemption Limit 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 first year, the amount is accumulated in your kitty.
Hence, you can claim for a higher amount if you travel in next year.
Year 1 amount + year 2 amount is available for LTA tax exemption claim in year 2.
Double Dip LTA If both husband and wife are receiving LTA from their respective employer’s, 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 income tax officer, you can be penalized.

LTA – Leave travel allowance – rules and how to save tax in india

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’s figures for your to decide.

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
Total 23k/276k

In this example, there are various tax saving options via different kind 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 maximum value after consuming 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
Total 23k/276k

I hope this will clarify lot of queries about LTA in your mind.

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Published by
Anil Gupta

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