Leave Travel Allowance: Tax Exemption of LTA/LTC

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Many employers give Leave Travel Allowance (LTA) to their employees which can be claimed if an employee goes on a vacation. This Leave Travel Allowance (LTA) can be claimed when an employee goes on a vacation and submits the actual bills to the employer. This amount is also sometimes referred to as Leave Travel Concession (LTC).

Different employers give different amounts as Leave Travel Allowance (LTA) depending on the position at which the employee is working. At the time of filing the income tax return, the amount received as Leave Travel Allowance is exempted to a specified level for the purpose of computing Income chargeable to tax under head Salaries.

The amount received as LTA/LTC is taxed as:-

LTA/LTC Received  xxx
(Less) LTA/LTC Exempt (xxx)
Amount chargeable to tax  xxx

The amount so computed after claiming this exemption would be chargeable to tax as per the Income Tax Slabs of the taxpayer for that Assessment Year.

Tax Exemption of Leave Travel Allowance

Income Tax exemption for Leave Travel Allowance is available u/s 10(5) from an amount received by an employee from his employer for himself or his family. This exemption is only allowed if the amount received is in relation to:-

  1. Leave to any place within India
  2. Any place in India after retirement from service or after the termination of his service

The following amount is allowed to be claimed as LTA exemption:-

Leave-Travel-Allowance

How many times can LTA exemption be claimed?

The taxpayer can claim exemption in respect of any 2 journeys in a block of 4 years. The Income Tax Department has created block of 4 years each and in each block, the exemption can be claimed twice.

The block of years during which exemption can be claimed twice are:-

Block No. LTA Block Years
1st Block 1986-89
2nd Block 1990-93
3rd Block 1994-97
4th Block 1998-01
5th Block 2002-05
6th Block 2006-09
7th Block 2010-13
8th Block 2014-17

In case a taxpayer has not been able to claim both the exemption or has claimed only 1 exemption in a particular block, he can carry forward the exemption of 1 journey to the next year.

Please note that he can carry forward the exemption of 1 journey only to the next year and not to the next block. For eg: If a taxpayer has only claimed a single exemption in the 7th Block i.e. 2010-13, he can carry forward this exemption to the next year i.e. 2014 and can claim this exemption only in the year 2014. The original 2 exemptions for 2014-17 would also continue to be there.

Other Relevant Points regarding LTA

  1. In case the LTA is encashed without performing the journey, no LTA Exemption would be allowed and the entire amount received by the employer would be taxable.
  2. Family for this purpose means the spouse and 2 children of the employee. It also includes parents, brothers & sisters of the employee who are wholly or mainly dependent upon him
  3. The exemption can be availed for the journey undertaken while on leave during the tenure of service or even after retirement/termination from service.
  4. It is not necessary that the family members should perform the journey along with the employee concerned.
  5. LTA Exemption is only available only in respect of fare. Any other amount received from the employer for the purpose of boarding and lodging or for any other purpose will not qualify for deduction.

The Leave Travel Allowance (LTA)/Leave Travel Concession (LTC) amount computed above is allowed as an exemption for income tax purposes. Your employer may pay you a different amount depending on your position in the organisation.

A Personal Finance enthusiast, Karan is the founder of charteredclub.com and loves to discuss about Money related matters.