The Income-tax Act, 1961 provides various tax exemptions for salaried individuals, in addition to deductions like LIC premiums and housing loan interest. These exemptions, distinct from deductions, exclude specific types of income from taxation, enabling employers to structure an employee’s Cost to Company (CTC) package in a tax-efficient manner.
One such widely used exemption is the Leave Travel Allowance (LTA) or Leave Travel Concession (LTC) available to the salaried class under the law. LTA can be claimed for travel within India for any two years in a block of four years, with the current block year being 2022 to 2025.
Leave Travel Allowance/Leave Travel Concession is provided by employers to employees for travel within India, whether on leave, after retirement, or after the termination of service. However, claiming an LTA exemption involves several considerations, as outlined by income tax provisions.
Individual employees can claim LTA for travel costs incurred for themselves and their family members, including spouse, children, and dependent siblings, parents, brothers, and sisters. The exemption is limited to actual travel expenses such as air, rail, or bus fare, provided by the employer.
To claim the exemption, employees must have an LTA component in their CTC, and the actual journey must take place. The exemption is not applicable for international travel, and certain restrictions apply to the number of children born after a specific date.
The procedure for claiming LTA varies among employers, with some requiring proof of travel such as tickets, boarding passes, or invoices from travel agents. While it is not mandatory for employers to collect proof of travel, it is advisable for employees to keep records and submit them based on the company’s LTA policy.
Additionally, income tax provisions allow exemption for multi-destination journeys within India, with conditions regarding the mode of transport and the shortest available route. Some organizations may restrict LTA claims to periods when employees take leaves for travel, excluding travel on official holidays or weekends.