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6/19/2015

TaxabilityofLeaveTravelAllowance(LTA)Section10(5)

TaxabilityofLeaveTravelAllowance(LTA)Section10(5)
PostedInIncomeTax|Articles,Featured,Popular|160Comments
CASandeepKanoi
Leave Travel Allowance (LTA) is the most
common element of compensation adopted
by employers to remunerate employees due
tothetaxbenefitsattachedtoit.AnLTAis
the remuneration paid by an employer for
Employees travel in the country, when he is on leave
withthefamilyoralone.LTAamountistaxfree.Section
10(5) of the IncomeTax Act, 1961, read with Rule 2B,
provides for the exemption and outlines the conditions
subject to which LTA is exempt. Through this writeup, I
want to shed light on the taxability and some other
interesting relevant aspects which you as a salaried
employeemustkeepinmind.
ExemptionofFareOnlyLTAexemptioncanbeclaimedwheretheemployerprovidesLTAtoemployeeforleave
toanyplaceinIndiatakenbytheemployeeandtheirfamily.Suchexemptionislimitedtotheextentofactual travel
costsincurredbytheemployee.Thetotalcostoftheholidaysisnotcovered,onlythetravellingcostiscovered.
Travel within India only allowed Travel has to be undertaken
within India and overseas destinations are not covered for
exemption.
Exemption on Actual Travel Expense For example, where
an employer provides LTA of Rs. 25,000, but an employee
spends only Rs. 20,000 on the travel cost, then the exemption
is limited to only Rs. 20,000. Travel cost means the cost of
travel and does not include any other expenses such as food,
hotelstayetc.
Meaning of Family for LTA : The meaning of family for the
purposes of exemption includes spouse and children and parents, brothers and sisters who are wholly or mainly
dependentonyou.Anindividualwouldnotbeabletoclaimtheexemptioninrelationtohisparents,brotherorsisters
unlesstheyarewhollyormainlydependentontheindividual.
Restriction on Number of Child for Claiming LTA : Further, exemption is not available for more than two
childrenofanindividualbornafterOctober01,1998. This restriction does not apply in respect of children born
before this date, and also in cases where an individual, after having one child, begets multiple children (twins or
tripletsorquadruplets,etc.)onthesecondoccasion.ThetermChildincludesastepchildandanadoptedchildof
theindividual.
Isexemptionavailableeveryyear?
No. The tax rules provide for an exemption only in respect of two journeys performed in a block of four calendar
years.Thecurrentblockrunsfrom20142017.Ifanindividualdoesnotusetheirexemptionduringanyblockonany
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TaxabilityofLeaveTravelAllowance(LTA)Section10(5)

one or on both occasions, their exemption can be carried over to the next block and used in the calendar year
immediatelyfollowingthatblock.
In such cases, the journey performed to claim such exemption will not be counted for the purposes of regulating
futureexemptionsallowableforthesucceedingblock.Forexample,Mr.XjoinsanorganisationonApril1,2012and
isentitledtoaLTAofRs30,000perannum(financialyear201213).
XundertookajourneyinDecember2012andusedhisexemption.However,forhisLTAentitlementfor201314,he
didnotundertakeajourneyduringthecalendaryear2013.
Hecanundertakethejourneyin2014toclaimtheexemptioninrelationtotheLTA.Hewouldalsobeabletousethe
LTA benefit for two other journeys which he can undertake in the current block 201417 in relation to his LTA
entitlementforfutureyears.
Proofoftravel
SupremeCourthasheldinthecaseofLarsen&ToubroandITIthatemployersareundernostatutoryobligationto
collectbillsanddetailstoprovethattheemployeeshadutilisedtheamountsobtainedagainsttheseclaimsontravel
andrelatedexpenses.
Employers while assessing the travel allowance claims, do not need to collect proof of travel to submit to the tax
authorities. Though it is not mandatory for employers to demand proof, they still have the right to demand
documentaryproofdependingonitspolicy.TheJudgementofSupremeCourthasonlymovedtheresponsibilityfrom
theemployertotheemployee,theassessingofficercanstillaskfortheemployeetoprovidedetailsoftravel.
The individual however needs to keep copies for his or her own records. Such proofs are helpful at the time of the
audit of the tax return of the individual. Proof of travel could be, for example, tickets, boarding passes, invoice of
travelagent,dutyslipetc.
HerewewouldlikealsotodrawattentionoftheemployerstoCircularNo.8/2013dated10102013whichsaysthat
inrespectofLTATheemployerhastosatisfytheobligationthatleavetravel(fare)concessionisnottaxableinview
ofsection10(5)theemployerisnotonlyrequiredtobesatisfiedabouttheprovisionsofthesaidclausebutalsoto
keepandpreserveevidenceinsupportthereof.InouropinionthecircularfailedtotakeintoaccountSCJudgmentin
thecaseofLarsen&ToubroandITIandEmployerarenotboundtomandatorilypreservetheDocuments.
During the Fringe Benefit tax (FBT) regime, provision of paid holidays, including travel cost to any place, stay
expensesetc.weresubjecttoFBTinthehandsofemployersandwerenottaxableinthehandsofindividuals.Many
employersextendedthepaidholidaybenefitinsteadofLTA.
NowwiththeeliminationofFBT,witheffectfrom.April1,2009,paidholidaybenefitisfullytaxableinthehandsof
employeesand,therefore,employersarereintroducingtheLTAelementbywithdrawingthepaidholidaysbenefit.
DoesclaimingLTAinalternateyearsmeanthatthetwoyearentitlementgetsaddedtogether?
It does. If you are entitled to an LTA of Rs.10,000 per year and do not utilize it for the the first year it is carried
forward to the next year. In the second year you can claim the entire amount (Rs.20,000) as tax exempt provided
youspenditaccordingtothespecificationinLTAtaxlawsasdetailedabove.
Carry over concession for Leave Travel Allowance : Leave Travel Allowance (LTA) comes with a carry forward
feature. You can carry forward your Leave Travel Allowance in the situation that it has not been used. It can be
broughtforwardandclaimedinthefirstyearofthenextblock.HerewewouldliketomentionthatonlyoneLTAcan
bebroughtforwardandclaimedinthefirstyearofthenextblock.
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CanIClaimLTATwiceinaYear:Thoughyoucanclaimtwojourneysinablockoffouryears,youcanclaimthe
LTA benefit just once in a year. You cannot claim both the journeys in one year. So, while a person can get an
incometaxexemptionfortwojourneysinablockoffourcalendaryears,hecanmakeatriponlyonceayear.Ifyou
maketwotripsinayear,youloseone.Onewayoutistoclaimoneandmakeyourspouseclaimtheotherincase
yourspouseisalsoworking.
LTAincaseofSwitchofJOB:Ifyouswitchjobs,youcangettheLTAnotonlyfromyourpresentorganisationbut
also from your former employer, if the concession is lying unutilised. Lets say that, in the 201013 block, you
claimedLTAin2011.In2012,youswitchedjobs.Youcanstillclaimyoursecondjourneywithyournewemployer.
Ofcourse,yournewemployerwillasktolookatyourearliertaxreturnstoseewhetherithasbeenclaimedornot.
AmountExempted
1.JourneyperformedbyAirEconomyAirfairofNationalcarrierbytheshortestrouteortheamountspent
whicheverislesswillbeexempt
2.JourneyperformedbyRailA.C.firstclassrailfarebyshortestroute.oramountspentwhicheverisless
willbeexempt.
3. Place of origin and destination place of journey connected by rail but journey performed by other
modeoftransportA.C.firstclassrailfarebyshortestrouteoramountspentwhicheverisless.
4. Place of origin & destination not connected by rail(partly/fully) but connected by other recognised
Public transport system First class or deluxe class fare by shortest route or amount spent which ever is
less.
5. Place of origin & destination not connected by rail(partly/fully) and not connected by other
recognisedPublictransportsystemalsoACfirstclassrailfarebyshortestroute(asthejourneyhadbeen
performedbyrail)ortheamountactuallyspent,whicheverisless.
ExtractofSection10(5)
Section10(5) in the case of an individual, the value of any travel concession or assistance received by, or
dueto,him,
(a) from his employer for himself and his family, in connection with his proceeding on leave to any place in
India
(b)fromhisemployerorformeremployerforhimselfandhisfamily,inconnectionwithhisproceedingtoany
placeinIndiaafterretirementfromserviceoraftertheterminationofhisservice,
subjecttosuchconditionsasmaybeprescribed(includingconditionsastonumberofjourneysandtheamount
whichshallbeexemptperhead)havingregardtothetravelconcessionorassistancegrantedtotheemployees
oftheCentralGovernment:
Providedthattheamountexemptunderthisclauseshallinnocaseexceedtheamountofexpensesactually
incurredforthepurposeofsuchtravel.
Explanation.Forthepurposesofthisclause,family,inrelationtoanindividual,means
(i)thespouseandchildrenoftheindividualand
(ii) the parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the
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TaxabilityofLeaveTravelAllowance(LTA)Section10(5)

individual]
Conditionsforthepurposeofsection10(5)asPrescribedinRule2BofIncomeTaxRulesExtractofRule2B
2B. (1) The amount exempted under clause (5) of section 10 in respect of the value of travel concession or
assistancereceivedbyorduetotheindividualfromhisemployerorformeremployerforhimselfandhisfamily,
inconnectionwithhisproceeding,
(a)onleavetoanyplaceinIndia
(b)toanyplaceinIndiaafterretirementfromserviceoraftertheterminationofhisservice,
shall be the amount actually incurred on the performance of such travel subject to the following conditions,
namely:
[(i)wherethejourneyisperformedonorafterthe1stdayofOctober,1997,byair,anamountnotexceeding
theaireconomyfareofthenationalcarrierbytheshortestroutetotheplaceofdestination
(ii) where places of origin of journey and destination are connected by rail and the journey is performed on or
afterthe1stdayofOctober,1997,byanymodeoftransportotherthanbyair,anamountnotexceedingtheair
conditionedfirstclassrailfarebytheshortestroutetotheplaceofdestinationand
(iii)wheretheplacesoforiginofjourneyanddestinationorpartthereofarenotconnectedbyrailandthejourney
isperformedonorafterthe1stdayofOctober,1997,betweensuchplaces,theamounteligibleforexemption
shallbe:
(A)wherearecognisedpublictransportsystemexists,anamountnotexceedingthe1stclassordeluxeclass
fare,asthecasemaybe,onsuchtransportbytheshortestroutetotheplaceofdestinationand
(B)wherenorecognisedpublictransportsystemexists,anamountequivalenttotheairconditionedfirstclass
railfare,forthedistanceofthejourneybytheshortestroute,asifthejourneyhadbeenperformedbyrail.]
(2) The exemption referred to in subrule (1) shall be available to an individual in respect of two journeys
performedinablockoffourcalendaryearscommencingfromthecalendaryear1986:
[Providedthatnothingcontainedinthissubruleshallapplytothebenefitalreadyavailedofbytheassesseein
respect of any number of journeys performed before the 1st day of April, 1989 except to the extent that the
journeyorjourneyssoperformedshallbetakenintoaccountforcomputingthelimitoftwojourneysspecifiedin
thissubrule.]
(3)Wheresuchtravelconcessionorassistanceisnotavailedofbytheindividualduringanysuchblockoffour
calendaryears,anamountinrespectofthevalueofthetravelconcessionorassistance,ifany,firstavailedof
bytheindividualduringfirstcalendaryearoftheimmediatelysucceedingblockoffourcalendaryearsshallbe
eligibleforexemption.
Explanation:Theamountinrespectofthevalueofthetravelconcessionorassistancereferredtointhissub
rule shall not be taken into account in determining the eligibility of the amount in respect of the value of the
travelconcessionorassistanceinrelationtothenumberofjourneysundersubrule(2).]
[(4) The exemption referred to in subrule (1) shall not be available to more than two surviving children of an
individualafter1stOctober,1998:
Provided that this subrule shall not apply in respect of children born before 1st October, 1998, and also in
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caseofmultiplebirthsafteronechild.]

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