Everything You Need to Know About Leave Travel

Allowance (LTA)
With the Financial Year winding to a close by end of March and Summary Vacations on the
horizon in April-May, many of us are planning our vacations during the time when our kids
don't have School. Many of us go on yearly outings with family but most people dont know
or dont use their Leave Travel Allowance. In fact, many of us would have heard the term LTA
at some point during their careers but dont bother to use it (including me) because we fail to
appreciate its use and tax benefits.
The purpose of this article is to help you understand what LTA is and how to use it to reduce
your tax liability.
What is Leave Travel Allowance?
Leave Travel Allowance is an allowance that is usually paid as part of Salary (Annual CTC to
be specific) by employers to their employees. The original idea behind the LTA component
was to help the employee meet his travel expenses. However, of late it has become yet
another component of the CTC and no one cares much about it except how much is paid out
as LTA every year by the employer.
LTA is usually decided for a year and then paid out on a monthly basis. For ex: If your LTA is
Rs. 12,000/- every year, you will get Rs. 1,000/- every month as LTA.
Many Employers club together the allowances like House Rent Allowance (HRA), LTA,
Medical Allowance etc. and come up with a final number that is added to the CTC. The
employee is given the flexibility to decide how much of the total Allowance is allocated to
each of theindividual components. As LTA isnt that popular with people, most of them
usually enter a small number there and fail to utilize it properly. In other cases, company's
themselves decide the LTA based on the employee's designation/experience etc.
Does the LTA Have Tax Benefits?
Of Course YES. Do you think, I will be writing an entire article if it werent important?
How does LTA Affect My Tax Liability?
Let us say your annual Salary is Rs. 6,00,000/After all your deductions like House Rent, Medical bills, Section 80C Tax Savings etc., your
Taxable Income is Rs. 3,50,000/Let us assume, your annual salary includes a Rs. 25,000/- LTA component and if you satisfy
all the criteria laid down by the Tax Authorities to utilize the LTA Tax benefits, your Taxable
Income will come down to Rs. 3,25,000/Effectively, the entire LTA component of your Salary became Tax Free!!!
However, Did you read the Sentence "If you satisfy all the criteria laid down by the Tax
Authorities to utilize the LTA Tax benefits" that I just used above?
Yes, the Tax Benefits arent available to everyone. You need to satisfy the following

conditions in order to be eligible to avail this tax benefit.

Condition No. 1: The Amount should be spent only on Self and Immediate Family Who is
totally dependent on you
By Family we are talking about - Spouse, A Maximum of two children, Parents, Brothers &
Sisters Who are not employed and are dependent on your income
Condition No. 2: The Travelling Group should Include the person who is going to claim LTA
If you are not travelling with your family, you cannot claim LTA for that trip. For ex If my wife,
two children and parents went to Delhi from Chennai, and I stayed back at work, I cannot
claim LTA on that trip.
Condition No. 3: The Amount Claimed should be for Travelling Expenses Only via the
Primary Mode of Travel
By Travelling Expenses, we are talking about the expenses incurred for the actual travelling
part like Train Tickets, Air Tickets, Bus Tickets etc.Supplementary Travel expenses
like Auto Fare, Taxi Fare etc. are not covered. All other expenses like Food, Accommodation,
Sightseeing etc. are not covered as well.
Condition No. 4: Foreign Travel is not eligible for LTA
All Trips and Travels within the country of India only are eligible for LTA Exemption under the
Indian Tax Laws
Condition No. 5: Travel Expenses are Considered only for the Shortest Route Possible
LTA Exemption can be claimed only corresponding to the fare that will be incurred if you take
the shortest possible route. If you are travelling from Chennai to Bangalore, the amount you
can claim is for a train/bus/flight that goes directly from Chennai to Bangalore. If you go from
Chennai -> Hyderabad -> Bangalore for some strange reason and try to claim the two-trip
expenses, it will not be approved. You have to either submit expenses for the Chennai ->
Hyderabad -> Chennai trip or book tickets in a direct trip from Chennai to Bangalore
Condition No. 6: You can claim LTA only Twice in a Block of Four Years
You could claim LTA exemption in respect of any two journeys in a block of four years. The
current block is 2010 to 2013. Say for example, you claim LTA exemption in 2010, then you
could claim just one more till 2013. Remember - You cannot Claim LTA Every year.
There is some confusion about whether LTA follows the financial year or the calendar year.
LTA Year blocks are always based on calendar year. So, it goes from Jan 2010 to Dec 2013
for the current block. The claim can be done in the financial year that the travel actually
happened. If you traveled between April to Dec 2013 you can claim it in the tax returns you
will be filing in 2014 for the financial year Apr'13 to Mar'14.
Condition No. 7: If Husband and Wife both receive LTA, They cannot claim the same Trip
If Husband and Wife both receive LTA as part of their salary, both of them could claim LTA
individually as the rules of LTA apply individually to each of them. So in a block of four years,
each spouse can claim LTA twice. The only restriction is that both spouses cannot claim an
LTA exemption for the same journey. In other words, LTA cannot be claimed twice for the

same journey.
Condition No. 8: You must have been on earned/annual leave on the dates for which you
are claiming the LTA. You cannot claim LTA for days when you were working. You must have
applied for annual or earned or paid leave (whatever you may wanna call it) and got it
approved in order to claim LTA. There is actually no limit on the minimum or maximum
number of days you need to apply for leave to claim LTA. But, for easier claims/processing
try to utilize at least 3 consecutive days of annual leave for LTA purposes.
As you can see, though LTA can be pretty useful in reducing your tax liability twice in a block
of four years, it isnt straightforward and involves a lot of Conditions. If you intend on claiming
LTA, make sure that you Remember these 7 conditions above.
After reading the above conditions, you would definitely have a few questions that are
lingering in your mind. I have tried to answer a few of them below. If you have any more
questions, please feel free to leave a comment and I will do my best to answer them.
1. Can I fly Business Class and claim LTA?
No. For air travel, the maximum amount that can be claimed as exemption is the economy
class air fare.
2. What is the Maximum Fare I can claim as LTA while travelling by Road or Rail?
For rail or road, the maximum amount that can be claimed as exempt is the air conditioned
first class rail fare to your destination by the shortest route.
3. What happens if I did not make a claim in the current block? Do I get any benefits
for the next block?
In case you dont avail of the LTA exemption in a particular block, whether for both the
journeys or for just one journey, you could carry forward one journey to the first calendar
year in the next succeeding block of four years. Thus, in the next block of four years, you
could claim the carried forward travel, plus, two journeys of that particular block i.e. a total of
3 exemptions!
For ex: Let us say you are entitled to an LTA of Rs.10, 000 per year and you do not utilize it
in the block 2010-2013. This amount could be carried forward in the next block of four years.
You must therefore claim this amount in 2014 and then you can further more claim your LTA
entitlement of that particular block (2 more times i.e. 10,000+10,000) as well.
4. How does One claim an Exemption?
As most of us are salaried employees, you can submit evidence for the travel (tickets/bills
etc.) to your employer and they will include it in your form 16. If you are self-employed or
missed submitting LTA to your company, you can avail the services of any chartered account
who helps file Tax Returns for people and they will be more than happy to include this along
with your tax calculations.
5. What happens if I spend more than my LTA amount?
In case your travel expenses exceed your actual Leave Travel Allowance amount, the
exemption you can claim is limited to your LTA Amount. For ex: If your LTA is Rs. 25,000/this year and you incurred Rs. 40,000/- in air fares for a family trip, your LTA Exemption will
be limited to Rs. 25,000/- and the remaining Rs. 15,000/- will not give you any tax benefits.

6. What happens if I dont exhaust my LTA amount?

In case your travel expenses are lesser than your actual Leave Travel Allowance amount,
the exemption is limited to the actual amount spent. For ex: If your LTA is Rs. 25,000/- this
year and you incurred Rs. 15,000/- in rail fares for a family trip, your LTA Exemption will be
limited to Rs. 15,000/- and the remaining Rs. 10,000/- will not give you any tax benefits.
7. I Traveled more than once in a single financial year. Can I claim both for LTA?
Yes.
8. I booked a tour via a travel operator as a Package. Can I claim the entire amount as
LTA?
No. Only the actual amounts spent on Road/Air/Rail transport can be claimed. Other
expenses cannot be claimed as LTA.
The idea here is - We will go on vacations with our families irrespective of the Tax Benefits
we get out of it. However, if we can get tax benefits, why waste it.
Happy Vacations!!!