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Tax deduction allowed on LTA
April, 01st 2008

Leave travel assistance (LTA) is generally paid as a part of the remuneration of employees. With some proper planning, an employee can save some tax through this mode. The LTA amount is received from the employer towards a journey within India. LTA is eligible for deduction under the Income Tax Act subject to compliance with specified conditions.

Section 10 of the Income Tax Act specifies that in the case of an individual, the amount of any travel concession or assistance received by him is exempt. It should be received from his employer for himself and his family. He should be proceeding on leave to travel to any place in India.

The exemption is available to an individual for two journeys in a block of four calendar years commencing from the calendar year 1986. The current block is calendar years (January to December) 2006 to 2009. Where such travel concession or assistance is not availed of by the individual during any such block of four calendar years, it may be carried forward. Such amount of travel concession or assistance can be availed of by the individual during the first calendar year of the immediately succeeding block of four calendar years, and is eligible for exemption.

Any fixed sum paid by the employer to the employee by way of LTA on the basis of a self-declaration by the employee is not exempt from tax. In order to claim the exemption, he must produce original proofs for expenses, i.e., the tickets, bills etc. The tax benefit is for actual fare only. Hotel, food, sight seeing, local conveyance etc are not allowed.

For the purposes of this exemption, 'family' means the spouse and children of the individual, and parents, brothers and sisters who are mainly dependent on the individual.

In case the journey is by air, an amount not exceeding the economy fare of the national carrier by the shortest route to the place of destination is taken. In case the place of origin of journey and destination are connected by rail, and the journey is by any other mode of transport other than by air, an amount not exceeding the air conditioned first class rail fare by the shortest route to the place of destination is taken.

Where the place of origin of journey and destination are not connected by rail, the amount eligible for exemption is - where a recognised public transport system exists, an amount not exceeding the first class or deluxe class fare, on such transport, by the shortest route to the destination, and where no recognised public transport system exists, an amount equivalent to the air conditioned first class rail fare, for the distance of the journey, by the shortest route.

The amount exempt will not exceed the amount of expenses actually incurred for the travel. The exemption is available for a maximum of two children of an individual. The journey should be in India only. The exemption is available for the farthest place by shortest route when a circular journey is undertaken. The amount exempted under Section 10 will be the amount actually incurred on the travel.

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