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10 Key Leave Travel Allowance Tax Exemption Rules

One of the "key" components of our salary is the Leave Travel Allowance (LTA) or Leave Travel Concession (LTC).

Reason? Tax Exemption!

However, as usual, this tax benefit is available provided you comply with the specified terms and conditions.

First, the definition:

Leave Travel Allowance is the amount that you receive from your employer — towards travel expenses of self and family — when you proceed on leave to any place in India. This includes even the travel after your retirement or on termination of your services.

Salient aspects of, tax exemption on leave travel allowance, are enumerated below:

ONE. Only the amount spent on travelling from one place to the other, is eligible for such tax exemption. This includes either the air fare, rail fare and / or the bus fare (including vehicle on hire). 

Expenses on boarding, lodging, local conveyance, sight-seeing etc. DO NOT enjoy any tax break.

TWO. There is a limit to such tax-exempt travelling costs (subject, of course, to the fact that the exempted amount will not exceed the travel expenses actually incurred).

a. Travel by Air : Air fare equivalent to the economy fare of the national carrier i.e. Air India.

b. Places that are connected by Rail (and you travel by any other mode of transport, except air) : First Class Air conditioned Rail fare 

c. Places (or part journey) that are not connected by Rail : First Class or Deluxe Class fare (if a Public Transport system exists). However, in the absence of any public mode of transport, amount equivalent to first class A/C rail fare is exempted from tax, as if your journey was made by rail.

Very Important: All the above fares shall be as applicable for the shortest route to the place of destination.

THREE. Foreign travel is NOT covered under the aforesaid rules. Hence, no tax exemption on travel abroad. 

FOUR. Given that the exemption applies on "travel" tickets only and during your "leave" from office, it is but logical that (a) if you do not take any leave and / or (b) do not undertake any journey, the question of tax exemption does not arise. In such cases, the entire LTA amount is taxable.

leave-travel-allowance-tax-exemption
All you wanted to know about tax breaks on Leave Travel Allowance.

FIVE. Persons in your family, whose travel with you, is eligible for tax exemption include your
- Spouse
- Two children (see pt.six below)
- Dependent Parents
- Dependent brothers / sisters

SIX. As regards the restriction of maximum two children, the following rules have been laid down
- all the children born before Oct 1, 1998 will be eligible for tax exemption
- plus, up to two children born after 1.10.1998 would be also be eligible for exemption
- in case there are multiple births (i.e. twins / triplets, etc.) on the second occasion after the birth of the first child, all such children would be eligible
- the 'child' includes the step-child and adopted child

SEVEN. It is also necessary for you to travel along with your family, for the expenses to be eligible for tax deduction. If only your family undertakes the journey, your tax break is zilch.

EIGHT. This benefit is not available every year. Rather, it is available only for up to two journeys during a specified block of four years. The current block is from Jan 2014 to Dec 2017. However, two journeys within one year are not eligible for this tax break.

In case you cannot make any or only one journey during a given block, you can carry forward and claim the tax concession on one trip in the first year of the next block. In other words, you become eligible for three journeys in the subsequent block of 4 years.

NINE. If both you and your spouse receive LTA from your respective employers, you have the freedom to make four journeys in each four-year block. Both of you can claim tax concession for two journeys each. (Note: Both cannot claim LTA tax exemption for the same journey.)

TEN. Original tickets or receipts need to be submitted as the proof.

This, in a nutshell, is the relief in your total income tax liability towards leave travel allowance, available under Section 10(5) and Rule 2B of the Income Tax Act.

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