A vacation with family can be exciting and super fun. But did you know that you could get some tax incentives too? The magic word is Leave Travel Allowance.
Not many of us make best use of the Leave Travel Allowance (LTA). LTA helps financially when planning a travel, and is also a great tax deduction tool.
Here is everything you need to know about LTA.
Understanding Leave Travel Allowance
LTA is an allowance paid as part of salary, which employers grant to each of their employees. The total Leave Travel Allowance for each employee is calculated on an annual basis. This allowance offers tax deduction benefits and helps employees cover any of their domestic travel expenses.
Companies usually offer LTA to employees who have worked with the enterprise for a minimum period of 1 year. Note that if you are receiving LTA as part of your CTC but are not utilizing it towards any travel expense, the entire amount offers no tax benefits and is taxable as per your tax bracket.
What is Included and Excluded in LTA
- Usually, the LTA amount is one month’s basic salary but can vary from company to company. Your CTC letter will contain the full details and the exact amount claimable.
- You can claim only for travel done with immediate family members including spouse, children, and dependent parents.
- The LTA rules permit a maximum limit of two children born after 1st October 1998 to be covered.
- LTA permits travel as either economy class airfare, first class AC rail fare. It is also allowed in first or deluxe class bus fare in recognized private transport.
- This allowance can be availed only for domestic travel.
- LTA accounts for only travel related expenses like tickets, and not any related expenditures like accommodation, shopping, or food.
LTA Tax Savings and the 4-Year LTA Blocks
Leave Travel Allowance offers tax benefits under Section 10(5) of the Income Tax Act. But LTA is permitted only for two travels within a block of 4 years as stipulated by the IT department. The block applicable currently is for travel undertaken from 2018 to 2021.
The good news is that if you fail to claim against LTA in any of the 4-year blocks, you can carry over the LTA to the next block. For example, if you claimed against LTA only once for the block ranging from 2014-17, you can carry over your LTA to the existing block of 2018-2021 and claim a total of 3 LTA exemptions for the block.
Important Points to be Aware of Before Filing LTA Claims
- Travel must be undertaken by opting for the shortest route between two destinations for LTA claims.
- The employee must be a part of the travelling team for any LTA claims.
- To claim LTA, employees must submit a written declaration underlining the exact amount utilized for travel.
- No bills are required to be submitted although a record must be kept in place for all expenses incurred during travel.
- If both husband and wife are eligible for LTA, both can seek LTA tax exemptions individually but not for the same trip.
So, the next time you set off on that exotic beach or backwaters sojourn, know your exemption limits under LTA and remember to claim once you’re back!