Leave Travel Concession (LTC), or Leave Travel Assistance (LTA) as it’s sometimes called, is an extremely tax efficient component of salary. However, there are some nuances and finer points associated with this deduction that have to be understood by employees fully in order to derive optimum advantage from this avenue.
There are certain conditions under which you'll get a deduction for LTA and vice versa.
Travel within India
This is by far the most important condition to be met for LTC. Nowadays, with foreign travel many a times being cheaper than domestic ones, families increasingly prefer destinations abroad over domestic vacations. However, remember that the LTA exemption is available only with respect to travel within India. Overseas travel is strictly not covered.
| EXTENT OF EXEMPTION |
|
Only fare is exempted
The LTC exemption is available only with respect to air, rail or bus fare. Hotel stay is not covered. Also other normally incurred expenses while travelling such as conveyance, porter, food, sightseeing costs and so on are not eligible expenses.
Actuals are exemption
LTC is restricted to the expenses actually incurred during the journey. That is, if you did not travel and consequently the related expenses were not incurred, the exemption cannot be claimed. And the entire amount encashed will be taxable in your hands.
For instance, an employer provides LTC of Rs 30,000 but the employee ends up spending only Rs 20,000 on travel. Then, the LTA exemption would be limited to Rs 20,000 only. The rest would be taxable.
Exemption for 'family’
As mentioned earlier, LTC is available for the travel expenses of the employee along with his family. Thus, it is important to determine who is covered under ‘family’. Family, for this purpose, includes spouse, children, parents, brothers and sisters of the employee who are wholly or mainly dependent on the employee.
With respect to the employee’s children, the exemption is available to not more than two children born after October 1, 1998. However, the restriction is not applicable for children born before that. Note that children born out of multiple birth (twins, triplets) after the first child will be treated as ‘one child’ only. Also, ‘child’ includes step or adopted child as well.
Exemption available twice in four years
LTC is available for two journeys performed in a block period of four calendar years. The current block runs from 2010-2013, that is, January 1, 2010 to December 31, 2013). This means between January 1, 2010 and December 31, 2013, the employee can claim exemption for two journeys.
Also, it is possible to carry forward LTC. If an employee does not avail of his entitled exemption in a block, then the exemption can be carried forward to the next block. However, it has to be claimed in the first calendar year of the next block. This will not influence his entitled two exemptions in the next block. This means, the employee can claim exemption for three journeys in the next block.
Say Vishal joins an organisation in April 2007. He is entitled to LTC of Rs 25,000 a year. He uses his entitlement in 2007-08 but does not use it the second entitlement. Then, Vishal can carry forward his exemption and will have to undertake the journey in calendar year 2010 to claim it. If he does not travel in 2010, he would have to forfeit his carried forward exemption. Also, whether he travels in 2010 or not, he can to use the LTA benefit for two journeys in the block 2010-13.
Employer needn’t check travel proof
In CIT vs Larsen & Toubro 181 Taxman 71 (SC), it was held that the assessee employer was under no statutory obligation to collect, audit and ascertain evidence (bills) to prove that the employees have appropriately utilised the LTC exemption. Simply put, the LTC may be claimed by the employees based on submission of a declaration to the employer that the LTC amount has been appropriately spent. It may be noted that this judgment takes the onus away from employers to check travel-related proof as mandatory. However, employers retain their right to demand documentary evidence depending upon their internal corporate policy. Also, it is important that the employee retains all bills as the Assessing Officer can call for the same during a scrutiny assessment.
Difference between LTC and Leave salary
LTC is meant to defray travel-related expenses when on leave. Leave salary is compensation for leave foregone. If leave standing to the employee’s credit is not taken within a year, it may lapse or it may be encashed or accumulated. The accumulated leave may be availed of by the employee during his service tenure or such leave may be encashed at the time of retirement or leaving the job. Such leave salary has its own rules for tax deductions.
The writer is Director, Wonderland Consultants
