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Home >Money >Personal-finance >DYK: how to make the most out of LTA claims

The end of the current financial year (2014-15) is upon us and it’s time to submit our travel bills to claim leave travel allowance (LTA) tax exemptions. Here’s a look at the best ways to claim LTA.

LTA IS NOT THE SAME AS LTA TAX EXEMPTION

To reduce the tax burden, many companies give reimbursements against travel. The condition is that you have to produce bills for the same. Every employee has an LTA limit. If your limit is, say, 20,000 per year, then you can submit bills worth 20,000 annually and your company will reimburse you the entire amount.

Once you claim your reimbursement, you can then claim a tax exemption (this amount won’t be considered as part of your taxable income). This is called LTA tax exemption.

In the absence of actual bills, you can still claim reimbursement but your company will deduct tax (highest tax bracket) and give you the remaining amount as part of your salary income.

SHOULD YOU CLAIM EVERY YEAR?

LTA tax exemption can be claimed twice (two journeys taken) in a block of four calendar years. That means, the current block of four years is 2014 to 2017. Remember, you can claim LTA reimbursement every year, but not the tax exemption.

A smarter way to get the best out of the LTA tax exemption is to claim your reimbursements in the same years as you get the exemptions. For this, keep a record in which years you claim your LTA tax exemption. Say, your yearly LTA travel reimbursement limit is 20,000. The current block of four years is 2014 to 2017. Let us assume you have travelled in January 2014 and claimed LTA tax exemption for it. You are sure that you will travel in December 2015 as well. Note that in this block of four years (2014-17), you can claim your LTA tax exemption only once more. For the December 2015 travel, you will submit your travel bills in 2016, for the purpose of tax calculation for FY2015-16. It would be better, then, to claim both your reimbursements in 2015-16. So, in 2015-16, you can submit bills worth 40,000 (20,000 limit of 2014-15 plus 20,000 for 2015-16), , if your company allows it. This way, you could claim a lump sum amount as LTA reimbursement and then claim tax exemption benefits on it.

LIMIT EXHAUSTION

What if you do not exhaust your annual limits at the time of claiming reimbursements? Suppose your LTA limit is 20,000 a year, and you have spent only 15,000. This means you can claim reimbursements and tax exemptions for only 15,000 in that year. The balance 5,000 gets added to next year’s limit of 20,000. So, if you wish to claim tax exemption benefits next year, you can claim for 25,000.

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