Leave Travel Allowance or Leave Travel Concession (LTA or LTC) and income tax rules

Leave Travel Allowance or Leave Travel Concession or Leave Travel Assistance (LTA or LTC) is a very powerful weapon given by employers to employees.  It can become a very powerful tax planning tool for you to save your income tax if you put things together well ahead of time.

Investors with a meticulous attitude towards financial planning would have done this already but for the uninitiated, let us understand what this policy or rules in India state, what you can avail and what are its income tax rules.

If you are someone who travels very frequently with your family, then you can plan your travel to take best advantage of the income tax rules.

What is Leave Travel Allowance or Leave Travel Concession ?

LTA is an allowance or part of renumeration provided by an employer to an employee to compensate for the travel expenses that the employee or his family incurs in India. Getting reimbursed for your travel by an employer is a great offer so you better not miss it. Also note that LTA is valid only if you travel within India, not outside.

The definition of family is spouse, two children, parents, brothers and sisters who are wholly dependent on you.

It is important to understand what can be claimed and what cannot be – while travel expenses are fine either by rail, road or air, you cannot claim other expenses like lodging, food, sightseeing, porter charges, taxi and auto fares and other sundry expenses you incur when you travel.

You can claim LTA if you take leave from your company and actually travel. Proof of travel is required for the claim to be made.  It must also be noted that you are the key person who should be travelling so if your family lands in Goa and you don’t, then you cannot claim !

The amount exempted under income tax rules is the amount required to travel to your destination by the shortest possible route, depending on the mode of your travel.

If you travel by air, the maximum amount that can be claimed as exempt is the economy class air fare to your destination by the shortest route. If you travel by rail (or road), the maximum amount that can be claimed as exempt is the air conditioned first class (AC I Class) rail fare to your destination by the shortest route.

Leave-Travel-Allowance

LTA and the Block of Four Years

It is important to understand that the LTA is not linked to when you started your employment. The government of India has fixed a block of 4 years during which LTA or LTC can be claimed twice. These are not fiscal years (April 1 to March 31) but instead calendar years (January 1 – December 31).

The current block is between 2010 – 2013 – what this means is that between January 2010 to December 2013 you can claim LTA twice. But remember that though you can claim LTA twice in these 4 years, in one year, you can travel just once.

Now if you haven’t claimed LTA in a block, you don’t actually lose it – it gets carried over to the first year of the next block. So if you think for a moment, in a block, you actually can claim for three LTAs, one of which is the carried over. The caveat is that the carried over LTA needs to be claimed in the first year of the next block.

Income tax rules

The calculation is simple.

If your company gives an allowance of say Rs 75,000 per annum as LTA and you produce a air fare ticket of Rs 25,000/-, then Rs 25,000 will be exempt from tax and the rest Rs 50,000 will be taxable in your hands depending on which tax bracket you fall into.

Suppose you do not travel at all, in that case the entire LTA will be taxed and the post taxable amount will be credited as part of your salary.

LTA rules for a working couple

This gets a bit interesting. If both the spouses are working, who can claim LTA and to what amount ? Again the rules state that both can claim LTA. So for a working couple, we are talking about 4 LTA claims in a block of 4 years. Needless to say, both cannot claim for the same journey.

But if you observe, they can travel in each year and don’t have to worry about travelling once each 2 years. If planned well, a working couple can actually enjoy their holidays and reduce their taxable income each year.

So what are you waiting for ? Instead of paying tax to the government, go and spend some quality time with your family and save money !

Comments

  1. Radhey,

    Very nicely explained. I have claimed LTA in the past but the amount is very negligible. Its only travel fare that can be claimed, so unless you have a big joint family you can’t save more. But then whatever you save is also good.
    But i don’t like the rules set by my current employer. They deduct one month’s basic salary in the beginning towards LTA. Why should they deduct my money when they can adjust the same in Jan.

    Rakesh

  2. Heard or used this concept when my father used to work in a nationalised bank.

    Do private companies too provide this facility?

  3. Hello sir, i just completed engineering and got job. I can save 3000/- Rs per month where should i invest them? I don’t know this investing stuff that much. So i prefer more security of money

    • Radhey Sharma says:

      @Darshan, Do you have a contingency fund ? If not, please form it and then start investing.
      Where to invest depends on what you are investing for – as I do not know that, I cannot really answer.

    • @Darshan,

      If you don’t know investing stuff then you are at the right place.
      Radhey has written some great articles on financial planning. Do read them and you will gain knowledge.

      Rakesh

    • @Darshan, You are at the right place. It depends on your risk appetite and your goals. Identify your needs and invest in the avenues according to your risk profile and reap the benefits.

    • @Darshan, I think first of all everyone should congratulate you that you are thinking of investing money at such a young age. You should encourage your friends to do the same.
      I am assuming that you don’t have financial dependents as of now, hence you can look to invest your money for long term [5-10 years] in equity MFs via SIP. There are plenty of blogs including this one that can teach you about MFs but I advise to go for blogs of independent Certified Financial Planners.
      Also, like Radhey mentioned it correctly start putting some money aside every month towards emergency funds as well. You can look for sweep-in savings account.

      Good luck and Happy investing.

      Cheers!

  4. Hello Radhey,
    Thanks for Detailed blog on LTA…

    I have a doubt, If i am travelling for 10 different places by Taxi starting from my Home city and back to my home city in a strecth of 7 Days. Assuming that total i spend is 40,000/-
    Now as per the above description, My farthest point would be somewhere around 700 KMs but i actually travelled 2000 KMs. 1st AC travel cost would be around 1600 per person one side..
    Whereas i actually end up in spending 30K in my actual travel…

    So, will i be eligible for claiming 30K or just 1AC fare…

  5. @Yagya,

    I am not sure about the rules now, but i too had claimed LTA the same way you are mentioning five years back. In this case 1st class AC fare would be considered. For eg. if you travel from Chennai to Delhi and then roam about to other cities, i think you can claim 1st class AC fair from Chennai to Delhi. I had claimed on similar grounds.
    But lets hear from other experts.

  6. What are your views on the medical bills re-reimbursement of Rs. 15,000 that we get. Don’t you think in today’s world this amount is peanuts and the government should increase the same.

  7. @Rakesh,

    Tax exemption, sorry i did not frame my question correctly.

    • @Rakesh, Yea I think this tax exemption is too low. If you consider a family with parents and kids 15k would be 3 months expense. It should at least be doubled, let’s see what budget has to say.

  8. @Vivek,

    Yes agree with you, i extinguish this amount in 5 months. This limit has been for so long and at least they should think of doubling it.

    • @Rakesh, Well don’t know if it will happen in this budget. The government is focusing on reducing tax exemptions and promoting only government schemes.

  9. Hi,

    My Employer forgot to include my LTA bill in my form 16. Can I claim file that through my auditor or it should come through Form 16 only.

    Thanks
    Hari.

  10. @Hari,

    You can claim it separately through your Auditor/CA. It is not mandatory that LTA should be included in Form 16.

  11. Prasad Rachuri says:

    Hi,
    I’m planning to travel to 6 different places in my own car. Are the fuel expenses eligible for claiming under LTA?.
    I have one more question. Does the LTA policy is same for Govt. organizations and private organizations or these are different ?
    Please help me with above two questions.

  12. @Prasad,

    I don’t think you can claim fuel expenses under LTA, however if you hire a vehicle then you can get original receipts for the travel. You claim only from start to end point, for. eg. you are traveling from Mum to Goa – Bangalore then you can claim LTA only from Mum – Bangalore.
    Also the LTA policy differs from one employer to other.

  13. I plan to claim LTA this FY (2012-13). Due to some personal reasons, my wife (and infant kid) wants to travel earlier than me, by a week, though we’ll be coming back to the starting point (during return journey) together.

    My question is :
    Can I claim for the LTA amount here ?
    If yes, how much ?

    • TheWealthWisher says:

      Let me check on this one week thingie.
      As far as the amount is concerned your employer would have offered it in your offer letter – you need to check in there.

  14. Thanks for the comments.
    To clarify the question, I want to know if I can claim LTA for me and my wife/kid, FOR BOTH TO AND FRO JOURNEYS, even though they are travelling separately (to the same destination) but coming back to the same starting point together (me, my wife and kid).

    Thanks,
    Sanjeev

  15. I think all should be traveling together. Look at IT rules for LTA.

  16. Rakesh,

    Looks like the clause of “all should be travelling together” holds good, if only family is travelling alone, without the employee travelling at-all. If the employee is also travelling, though with some delay (and coming back together), it should not be problem.

  17. How about this from the LTC clause :

    ” Family can travel in one or more groups; but each group should complete its return journey within six months from the date of its outward journey “

  18. @Sanjeev,

    Thanks for the clarification.

  19. Hi,
    If I don’t claim LTA in a particular year, does the amount get carried forward to the next year? For example, if I do not claim LTA in FY 2012-13. Can I carry forward this amount and club it with my LTA eligibility for FY 2013-14 and claim it together with bills in say Nov 2013.

  20. @Jenice,

    You can claim LTA only twice in four calender year. The current cycle is 2010 – 2014.

  21. If I am travelling from Pune to Delhi by train and then while coming back I travel by taxi. I understand from above that 1st AC fare would be reimbusible. But in this case I do not have train tickets from Delhi to Pune. Is this ok If I mention this while claiming .

  22. Taxi fare will be eligible too provided you produce receipts but you will get exemption only on the amount of 1st AC fare. For. eg if the AC fare is 2000 and the taxi fare is 4000 then you will get claim only upto 2000.

  23. Hi,

    I had a travel this FY and I am not claiming it becuase I didnt fix my LTA part in the salary strucutre for this year .Can I submit the same bills in the next FY (I can allocate my LTA) with the docs with same old date?

  24. Hi,
    what are the documents need to submit while LTA claim, When we are travelling using our personal vehicle then what we suppose to show (petrol bill ????), & when we are visiting to our home town to native place (hotel bill ?????)
    what are the ways by which we can enjoy the & also tax ?????????

    Thanks & Regards,
    Amit

  25. @Amit,

    I don’t think petrol bills will do. You need to provide Air/Train tickets.
    However if you rent a vehicle you can show the receipts for that.

  26. Hi,

    I have not claimed LTA uptill now for this block. However, my employer has been deducting tax and giving me the same with my March salary for the last 2 years including this year 3013. Now I want to claim for 2012 – 13. Is that possible?

  27. @Anindita,

    You can claim LTA, when filing your returns just submit the bills to your tax consultant.

  28. I was just going through ITR 1 but did not come across any column where I could show my expenses toward the LTC. Can somebody guide me how I can file my return to make this claim
    KK

  29. srimanto says:

    How to claim LTA while filing returns?

  30. I have traveled during Feb end 2013. My company accepted bills till Feb only and therefore I could submit bills to my company for LTA tax exemption. How do i claim tax refund while filing ITR? which are the columns in ITR 1 for the same?

  31. @Amit,

    Get hold of a tax consultant he will be in a better position to guide you.

  32. Nagendra kamath says:

    Hi,
    Our company clubs our LTA across every 2 years and credits the LTA amount once every two year in the month of Jan if not claimed . I did a travel in Jan 2013 and did not submit the bill , as i was hoping that i may travel again ( which may cost me more )

    Do you think there is problem if i submit the bill now ( Sep 2013) . The company has my two years LTA amount with them .

    Is it proper for my company to say that , i must have submitted the bills by March 2013 , even when they have my entire LTA amount for last two years ?

    Should i be able to submit the LTA bills anytime from Jan to Dec for travel conducted in this calender year 2013 or does March 2013 ( financial year end ) matter ?

    • @Nagendra,

      Many organization has different policies on LTA. If your company is not allowing you to claim LTA now, you don’t have to worry. When you file returns you can always claim then and get a refund.

  33. Hi,
    If the travel commenced on March 29th 2013 and Ended on 8th April 2013. Whether full amount has to be considered in financial year 2013-14 or onward has to be considered in FY-2012-13 ?.
    Regards
    Vinod

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