Unlocking LTA Claiming Benefits: Are They Worth The Tax Savings?

Imagine getting tax benefits while vacationing in your favorite destination—Shimla, Manali, or Goa. It might sound too good to be true, but it’s possible through claiming LTA (Leave Travel Allowance).

The Income Tax Act, 1961, provides various exemptions, including those for life insurance premiums and housing loan interest. Exemptions reduce specific components’ tax liabilities, aiding employers in planning a tax-efficient cost-to-company (CTC). LTA, once exclusively for PSU employees, can now be claimed by non-central government employees too.

Are you eligible for this exemption? How much can you deduct from your travel expenses? This article delves into these questions, helping you decide whether to claim LTA benefits.

Understanding Leave Travel Allowance (LTA)

Leave Travel Allowance is an employer-provided allowance for employees on leave. This is part of their cost-to-company (CTC) and is exempted under section 10(5) of the Income Tax Act, 1961.

Key Conditions for LTA Exemption

To claim LTA exemption, several conditions apply:

1. Actual travel is mandatory.
2. Only domestic travel qualifies—excludes international trips.
3. The exemption covers employee and family, including spouse, children, dependent parents, and siblings.

How to Claim LTA?

The process for claiming LTA varies by employer. Any employer sets a deadline for workers to claim LTA and may ask employees to request evidence of travel, such as tickets, boarding passes, or invoices from travel agents, in addition to the required declaration. 

While it is not required of employers to obtain proof of travel, it is often a good idea for workers to retain copies for their records and to report to their employers depending on the company’s LTA policy or to tax authorities on request.

Eligible LTA Expenses

Eligible expenses for LTA exemption include air, train, or bus fare, excluding local conveyance, sightseeing, and food expenses. Bills and tickets must be preserved. Exemption is limited to the LTA provided by the employer.

Example: LTA given = Rs 40,000, Eligible travel expenses = Rs 30,000. Tax exemption = Rs 30,000. The remaining Rs 10,000 becomes taxable income.

Travel Class Restrictions

Travel class restrictions apply:

1. Air Travel: Exempt fare limited to economy class fare.
2. Train Travel: Exempt fare restricted to first-class fare.
3. Bus Travel: Exempt fare limited to deluxe bus fare.

Block of Years

LTA can be claimed twice in a block of four calendar years. The calendar year 2022-25 is the block that applies for the present year. 

LTA for Private Sector Employees

Private sector employees can claim LTA as Leave Travel Concession (LTC). They must spend three times the LTC they wish to claim and provide expense bills to their companies. The same applies to the LTC cash voucher scheme.

Under this scheme, employees can use LTA for purchasing electronic goods, home appliances, or other products with GST rates of 12% or higher. Purchases must be made before March 31, 2021, and paid for digitally.

Should You Use This Benefit?

If the expense aligns with your plans, using this exemption is a smart move. However, making purchases solely for the exemption might impact cash flows.

The government aims to boost consumption through this income tax benefit. Reduced salaries have led to lower demand for consumer goods. This tax benefit might stimulate consumption, making wise tax planning essential.

Embrace the tax savings opportunity wisely and make the most of your LTA claiming.

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