Towards the end of January, most office conversations move from New Year wishes to claiming all allowances, including leave travel allowance (LTA), before the fiscal year ends. While everyone would have heard about LTA, they may not know about finer details. Questions such as will you get an income-tax exemption for travel made by your twins, would your foreign travel be covered may bother you.
Here’s a quick guide on LTA.
What is LTA?
“LTA is an allowance or amount you get from your employer to travel. You get it when you are on leave from work and actually travel. A businessman or self-employed person cannot pay himself LTA,” says Amit Dani, chartered accountant and certified financial planner, Think Consultants, a financial planning firm.
Some companies give LTA even to ex-employees post-retirement or after their services are terminated.
LTA is exempt from tax under certain conditions. As the name suggests, it covers only travel expenses and not other expenses such as boarding and food.
Who can be included?
In order to claim LTA, you can travel alone or with your family. Says Anil Rego, chartered accountant and CEO of Right Horizons, an investment advisory and wealth management firm, “Family means your spouse, children, dependent parents as well as brothers and sisters who are your dependants. Exemption is allowed for up to two children, if the children are born after 1 October 1998.” However, if your children were born before October 1998 then, you can claim an exemption for any number of children; even multiple births (twins, triplets) after the first child are accepted.
Says Rego, “Children can be adult children as well since the law does not specify the age of the children.” So if you have an 18-year-old, who is a college student and is not a tax assessee, you can include him as well.
Says Parizad Sirwalla, tax partner, KPMG, an audit and consulting firm, “If your family travels without you, it may be advisable not to claim an LTA for that journey because the tax law says the employee should proceed on leave to any place in India. If you travel alone, you can claim an LTA. If you are claiming for the family, you should travel with them.”
Where can you travel?
To avail the scheme, you have to be on leave and travel to any place in India. The Income-tax Act does not specify the minimum number of leaves to avail the LTA exemption. However, your company may have a set number of leaves you need to avail to claim an exemption. So check with your employer. LTA is not given for foreign trips. The exemption is available for any journey made by air, road or rail anywhere in India.
Air travel: Economy class fare of a national carrier via the shortest route is allowed.
Rail travel: Air-conditioned (AC) first class rail fare via the shortest route is allowed.
Other modes: If a recognized public transport exists on the route you travel, then up to first class deluxe fare is allowed. Else, an amount equivalent to the AC first class rail fare is paid. Other modes of travel includes, bus and rented vehicles.
You must take the shortest route to get the LTA benefit.
If you’ve travelled to multiple destinations, the place that is farthest from your residence will be considered for calculating the exemption amount.
When can you claim?
There are predetermined blocks of four calendar years; the first block began in 1986 to 1989, the next block was 1990 to 1993 and so on. You can claim exemption for up to two journeys in a block of four calendar years.
Sirwalla says, “You can claim exemption for up to two journeys in a block of four calendar years. The current block is 2010 to 2013.” Simply put, if you have claimed an LTA exemption in 2010, then you can claim one more till 2013.
If you are not able to make a claim in a block, there is a carry forward facility available. Sirwalla says, “You can carry forward one journey, that too only in the first calendar year in the next block of four years.” So in such a case, in the next block, you can claim three LTA exemptions in total.
How to make a claim?
Give a written declaration to your employer with travel details and the amount spent. As per the Supreme Court, if you submit a declaration stating the amount you spent, you don’t need to give the actual bills. We recommend you do keep the tickets handy in case your employer or the tax authorities need to see it later.
If both spouses are eligible for LTA: Both the spouses can claim LTA individually. Dani says, “But both can’t claim LTA for the same journey.”
What happens if you don’t travel at all?
Rego says, “If you do not travel, you will still get the LTA amount, but you will have to pay tax on the same based on your tax bracket.”
You can get exemption only for the amount you are eligible for and the actual amount spent on travelling. So, if your LTA amount is Rs 15,000 but you’ve spent Rs 20,000, you will get an exemption only for Rs 15,000. Alternately, in case you spent only Rs 10,000, you will get an exemption for Rs 10,000 only. You will have to pay tax on the remaining Rs 5,000.
Now that you know about LTA and finer details about exemptions, make sure you put this information to use. And may be even show off around your office coffee machine discussions on tax related topics.