An easy way to save some tax from your salary income, leave travel allowance (LTA) can be tricky if you overlook the eligibility criteria. LTA, also known as leave travel concession (LTC), cannot be claimed every year and you may not be able to claim exemption on the full amount. It is most likely that LTA is a part of your salary package but it will not be treated as tax-free income every year under section 10(5) of The Income Tax Act, 1961.
How much exemption can you claim on LTA:
Under the provision, LTA exemption is given only to the salaried class on actual domestic travel expenses incurred by an employee during his or her leave. The maximum LTA exemption you can claim, however, cannot be more than the LTA component in your salary.
LTA exemption is in respect of actual expenditure on the fare, hence, if no journey is undertaken, then no exemption is available. Also, no exemption is available beyond travel costs.
For air travel: Amount of exemption cannot be more than the economy class airfare of Air India on the route.
For train journeys: Amount of exemption is allowed up to AC first class rail fare.
For travel by other means of transport: An amount equal to the AC first class rail fare is allowed as exemption.
For LTA calculation, the fares of spouse, kids, dependent parents and siblings are also considered. The exemption is however limited to only two children born after October 1, 1998.
When to claim tax exemption for LTA:
As an employee, you can claim LTA exemption only for two journeys in a block of four years. The block applicable for the current period that began in January 2018 and ends in December 2021.
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 from 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.