India Markets open in 7 hrs 6 mins

Leave Travel Allowance: Can LTA help you save tax under new tax regime?

Priyadarshini Maji
new tax slab 2020, tax slab 2020, budget 2020, Leave Travel Allowance, LTA, LTC, Leave Travel Concession, section 10(5), Income Tax Act, tax exemption, tax saving, LTA for block 2014-2017, LTA for block 2018-21, income tax, tax-saving investments, 80C benefits, tax benefits only, long-term investments, financial goals, Tax Deducted at Source, TDS, tax refund, return on investment, Income Tax Return, ITR

The current financial year is going to end soon and most people are making investment declarations in a bid to save income tax. Among the various options that are available, Leave Travel Allowance (LTA) is one of the ways to save tax. This option is like an added benefit to the employee, wherein he/she gets to take a vacation, and at the same time reduce the burden of tax liability up to a certain limit.

LTA or Leave Travel Concession (LTC) is paid by the employer to employees, wherein they grant the employees leave while bearing all travel expenses, and additionally, the employee also gets to save tax.

With LTA the employee can get his/her travel expenses reimbursed from the employer, and get tax exemption under section 10(5) of the Income Tax Act. Note that, the expenses that are reimbursed include only travelling expenses and no other expenses such as food, shopping, lodging, etc. are covered. However, the travel expenses include expenses of the employee along with his/her family to any place in India. The travel expenses are covered twice in a period of four calendar years, and the current ongoing block is 2018-21.

Can you claim LTA or LTC?

Employees who can claim reimbursement under the word ‘family’ has been described by the Income Tax Department. According to the Income Tax Department for the purpose of claiming LTA, 'family' includes – the employee’s spouse and two children, dependent parents, along with dependent brothers and sisters.

How much can one claim under LTA or LTC?

Just because somebody else will be paying for your travel, you cannot just go around buying the most expensive ticket. The expense that you can make under this comes with a cap. For instance, travel fares are exempt as per certain conditions subject to the amount actually incurred. Hence, the amount you spend on travel expenses should not exceed the amount specified in your CTC.

1. In case you are travelling by train, the amount of tax exemption will include the amount actually spent on the train fare, or first-class ticket for the shortest route, whichever is lower.
2. If you are travelling by air, the amount actually spent on airfare or the price of an economy class ticket for the shortest route, whichever is lower, will be considered.
3. If you use any other mode of travel, (if the places are not connected by rail and air), then the actual amount spent on the transport or the value for deluxe 1st class fare on such transport by the shortest route, whichever is lower, will be considered.

How to claim LTA for tax saving?

a) As the employee, firstly fill up your details at the time of income tax proof declaration (in Form 12BB), to claim LTA for the purpose of saving tax.
b) You will be needed to submit proof of your travel like the rail tickets, boarding pass, travel agent's invoice, etc. to the employer.
c) After considering it, the employer will then reimburse you for the same after deducting TDS for the subsequent months.

Note that, all organizations do not provide this leave allowance in their employee’s salary structure. It is, therefore, better to check with your employer before claiming the allowance. Also, international travels are not included and the exemption is only allowed on actual travel cost, and for domestic travels only.

LTA treatment under the new tax regime

Under the new income tax regime, popular deductions or exemptions that individuals currently have, including LTA (Leave Travel Allowance), interest on housing loan (self-occupied property), HRA (House Rent Allowance), Standard Deduction and deductions which include Section 80C, Section 80D, among others, will be waived off.

Industry experts say, salaried individuals claiming exemptions under LTA, 80C, 80D, interest on housing loan, HRA, etc. should stick to the existing income tax regime, to get the most benefit.