Income Tax Benefit on LTA/LTC under section 10(5)

Updated: As per amended Finance Act 2020

Leave Travel Concession or Assistance (LTC/LTA), extended by an employer to an employee for going anywhere in India along with his family exempt is exempt from tax if you have opted for old-tax regime. In the other words, the tax exemption of leave travel allowance is not available in case you choose the new tax regime. Further, Leave Travel Concession or Assistance is exempt from tax subject to following conditions;

1. The actual journey is a must to claim the exemption.
2. Only domestic travel (within India) is considered for exemption. No international travel is covered under LTA
3. The exemption shall be limited to fare for going anywhere in India along with family twice in a block of four years*.
4. The family includes spouse, children, and dependent brother/sister/parents. It is important to note that family doesn’t include more than two children of an individual born on after October 1, 1998.
5. In case of a journey is performed by Air, the amount of exemption cannot be more than the economy class airfare of Air India (National Carrier) on the route or the amount spent, whichever is less.
6. In case of the journey is performed by  Rail, the amount of exemption is allowed up to AC first-class rail fare by the shortest route or the amount spent, whichever is less.
7. In case of the journey is performed other than Rail where the places of origin of journey and destination are not connected by rail, the exemption limit is restricted to; (a). Where a recognized public transport system exists – First Class or deluxe class fare by the shortest route or the amount spent, whichever is less (b) Where no recognized public transport system exists – Air-conditioned first-class rail fare by shortest route or the amount spent, whichever is less

*A block year is different from a financial year and is decided by the Government for LTA exemption purposes. It comprises of 4 years each. The very first 4-year block commenced from 1986. List of block years are 1986-1989, 1990-93, 1994-97, 1998-2001, 2002-05, 2006-09, 2010-13, 2014 to 2017 and so on. The block applicable for the current period is the calendar year 2018-21. In case an employee has not availed exemption with respect to one or two journeys in any of the block of 4 years, he/she is allowed to carry over such exemption to the next block provided he avails this benefit, in the first calendar year of immediately succeeding block. For example, if you missed out on claiming two tax exemptions during the last block of 2014-17, then you can carry over one journey to the new block that began in 2018. In this way, you can get a maximum of three tax exemptions on LTA in a block of four years. But according to Income Tax rules, carry forward is allowed only when you make a claim in the first year of the block.

Source: Income tax department

Related Post: