Tips for Enjoying a Tax-Free Vacation with the Travel Leave Allowance

The fiscal year is ending soon and most taxpayers are finding ways to save income tax. Among the many options available, the Leave Travel Allowance (LTA) is one way to save tax for employees. It also has the added benefit of spending quality time with family and at the same time reduces the tax burden to be paid up to a certain limit. There are many terms and conditions for applying for an LTA and so one should plan their trip accordingly in order to successfully apply for an exemption. Here’s how you can enjoy a tax-free vacation with Travel Leave Allowance (LTA).

What is Travel Leave Allowance (LTA)?

One of the exemptions under the Income Tax Act 1961 that is commonly used by many employers is Traveling Leave Allowance (LTA). Travel allowance on leave is a tax exemption for an allowance paid to the employee by the employer for travel expenses incurred while on leave. The amount received as an LTA is exempt from tax up to a certain limit under Section 10(5) of the Income Tax Act 1961. Due to the current pandemic where people were confined to their homes as lockdown was imposed in all countries, the Government of India launched the Leave Travel Concession (LTC) Cash Voucher Scheme in 2020. In order to enable people to claim tax benefits, employees can claim a tax deduction on LTC by spending the money to purchase goods and services instead of submitting travel invoices. The scheme was initially launched for public sector employees, but was later extended to non-government employees as well.

Who can benefit from the LTA exemption?

An employee traveling on sick leave

Who is eligible?

The employer decides how much to allocate for ALT to an employee. To apply for an LTA, an employee must travel during the block year (to India). The current block year is 2022 to 2025. This can be a round trip with family members or a solo trip.

Conditions apply

The claimant must cover the actual journey to qualify for the exemption. Travel must be within the country’s borders. Therefore, international travel cannot be claimed or covered by LTA.

To qualify for the exemption, the employee or applicant must be traveling alone or with their family, including the employee’s spouse, children, dependent parents, siblings of the employee. LTA also covers the travel of close family members such as a spouse, brother, sister, parents and children provided they have made the same trip with you. The LTA exemption is granted only on the actual cost of travel, which is the fare incurred by bus (luxury class), plane (economy class) or train (AC first class). No other travel expenses, such as sightseeing, hotel stay, food expenses, etc., can be used for the LTA exemption.

How to claim

The LTA application procedure normally depends on the employer. The employer announces the period and the due date within which the employees can present their proofs of travel documents such as tickets (in original), invoices, boarding passes, etc., as well as the necessary declaration. Upon presentation of proof, employers will credit the LTA component in the salary and treat it as a non-taxable component.

LTA calculation

An employee is allowed to apply for an LTA for two trips in one block, which includes four years. These blocks are different from the fiscal years declared by the Income Tax Department. The employee can claim two trips during these block years. The current block years are from 2022 to 2025. The LTA exemption can only be taken for a ticket or travel fare and no other expenses can be included or will be eligible for LTA.

Can the LTA be postponed?

If an employee has not taken advantage of the exemption for one or two trips during the four-year period of the block year, he is authorized to carry this exemption over to the next block. This is on the condition that he or she takes up the benefit in the very first calendar year of the immediately following block. Therefore, Travel Leave Allowance (LTA) / Travel Leave Concession (LTC) is an important part of an employee’s salary that helps them save income tax. While these tactics can help you save money, remember that this pandemic isn’t over yet and travel continues to be risky and complicated in many parts of the world.

(The author is the founder of 7Prosper, a financial planning service)

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Posted: Sunday February 13th 2022, 07:00 IST

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