Taxability of Leave Travel Allowance (LTA) – Section 10(5)

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Leave Travel Allowance (LTA) is
the most common element of compensation adopted by employers to remunerate employees due to the tax benefits attached to
it.  An LTA is the remuneration paid by an employer for
Employee’s travel in the country, when he is on leave with the family or alone.
LTA amount is tax free. Section 10(5) of the Income-Tax Act, 1961, read with
Rule 2B, provides for the exemption and outlines the
conditions subject to which LTA is exempt.
Through this write-up, I want to shed light on the
taxability and some other interesting relevant aspects which you as a salaried
employee must keep in mind.
Exemption of Fare Only – LTA exemption can
be claimed where the employer provides LTA to employee for leave to any place in India
taken by the employee and their family. Such exemption is
limited to the extent of actual
travel costs
 incurred by the employee. The total
cost of the holidays is not covered, only the travelling cost is covered.


Travel within India only allowed- Travel has to be
undertaken within India and overseas
destinations are not covered for exemption
.
Exemption on Actual Travel Expense – For
example, where an employer provides LTA of Rs 25,000, but an employee spends only Rs
20,000 on the travel cost, then the exemption is
limited to only Rs. 20,000. Travel cost means the cost of travel and does not include any other expenses such as food, hotel
stay etc.
Meaning of Family for LTA :– The meaning of ‘family’ for the purposes of exemption includes
spouse and children and parents, brothers and sisters who are wholly or mainly dependent on you. An individual would not be able to claim the exemption in
relation to his parents, brother or sisters unless they are wholly or mainly
dependent on the individual.
Restriction on Number of Child for Claiming LTA :- Further, exemption is not
available for more than two children of an individual born after
October 01, 1998. 
This
restriction does not apply in respect of children born before this date, and
also in cases where an individual, after having one child, begets multiple children
(twins or triplets or quadruplets, etc.) on the second occasion. The term
“Child” includes a step-child and an adopted child of the individual.
Is exemption available every year?
No.
The tax rules provide for an exemption only in respect of two journeys performed in a block of four
calendar years. The current block runs from 2010-2013. If an individual does
not use theirexemption during any block on any one or on both occasions, their exemption can
be carried over to the
next block and used in the calendar year
immediately following that block.
In such cases, the journey performed
to claim such exemption will not be counted for the purposes of regulating future
exemptions allowable for the succeeding block. For example, Mr. X joins an
organisation on April 1, 2008 and is entitled to a LTA of Rs 30,000 per annum
(financial year 2008-09).
X undertook a journey in December
2008 and used his exemption. However, for his LTA entitlement for 2009-10, he did
not undertake a journey during the calendar year 2009.
He can undertake the journey in 2010
to claim the exemption in relation to the LTA. He would also be able to use the LTA
benefit for two other journeys which he can undertake in the current block 2010-13
in relation to his LTA entitlement for future years.
Proof of travel
Supreme Court has
held in the case of Larsen & Toubro and ITI that employers are
under no statutory obligation to collect bills and details to prove that the
employees had utilised the amounts obtained against these claims on travel and
related expenses.
Employers while
assessing the travel allowance claims, do not need to collect proof of
travel to submit to the tax authorities. Though it is not mandatory
for employers to demand proof, they still have the right to demand
documentary proof depending on its policy. The Judgement of Supreme
Court has only moved the responsibility from the employer to
the employee, the assessing officer can still ask for the employee to provide
details of travel.
The individual however
needs to   keep copies for his or her own records. Such proofs are
helpful at the time of the audit of the tax return of the individual.
Proof of travel could be, for example, tickets, boarding passes, invoice of
travel agent, duty slip etc .
During the Fringe Benefit tax (FBT)
regime, provision of paid holidays, including travel cost to any place, stay
expenses etc. were subject to FBT in the hands of employers and
were not taxable in the hands of individuals. Many employers extended
the paid holiday benefit instead of LTA.
Now with the elimination of FBT ,
with effect from. April 1, 2009, paid holiday benefit is fully taxable in the
hands of employees and, therefore, employers are
reintroducing the LTA element by withdrawing the paid holidays benefit.
Does claiming LTA in alternate years mean that the two year
entitlement gets added together?
It does. If you are entitled to an
LTA of Rs.10,000 per year and do not utilize it for the the first year it is
carried forward to the next year. In the second year you can claim the entire amount
(Rs.20,000) as tax exempt provided you spend it according to the specification
in LTA tax laws as detailed above.
Carry over concession for Leave Travel Allowance :- Leave Travel Allowance (LTA) comes with a carry forward
feature. You can carry forward your Leave Travel Allowance in the situation
that it has not been used. It can be brought forward and claimed in the first
year of the next block.
Can I Claim LTA Twice in a Year:-  Though
you can claim two journeys in a block of four years, you can claim the LTA
benefit just once in a year. You cannot claim both the journeys in one year.
So, while a person can get an income tax exemption for
two journeys in a block of four calendar years, he can make a trip only once a
year. If you make two trips in a year, you lose one. One way out is to claim
one and make your spouse claim the other in case your spouse is also working.
LTA in case of Switch of JOB :- If
you switch jobs, you can get the LTA not only from your present organisation
but also from your former employer, if the concession is lying unutilised.  Let’s
say that, in the 2010-13 block, you claimed LTA in 2011. In 2012, you
switched jobs. You can still claim your second journey with your new employer.
Of course, your new employer will ask to look at your earlier tax returns to see whether
it has been claimed or not.
Amount Exempted
1.  Journey
performed by Air –
 Economy Air fair of National carrier by the shortest route
or the amount spent which ever is less will be exempt
2.  Journey
performed by Rail
 – A.C. first class rail fare by shortest route.or amount
spent which ever is less will be exempt.
3.  Place
of origin and destination place of journey connected by rail but journey
performed by other mode of transport –
 A.C. first class rail fare by
shortest route or amount spent which ever is less.
4.  Place
of origin & destination not connected by rail(partly/fully) but connected
by other recognised Public transport system –
 First
class or deluxe class fare by shortest route or amount spent which ever is
less.
5.  Place
of origin& destination not connected by rail(partly/fully) and not
connected by other recognised Public transport system also
 –
AC first class rail fare by shortest route (as the journey had been performed
by rail) or the amount actually spent ,which ever is less.
Extract of Section 10(5)
“Section 10(5)  in the case of an individual,
the value of any travel concession or assistance received by, or due to, him,—
(a)  from his employer for himself and
his family, in connection with his proceeding on leave to any place in India ;
(b)  from his employer or former employer for
himself and his family, in connection with his proceeding to any place in India
after retirement from service or after the termination of his service,
subject to such conditions as may be prescribed (including
conditions as to number of journeys and the amount which shall be exempt per
head) having regard to the travel concession or assistance granted to the
employees of the Central Government :
Provided that the amount exempt under this clause shall in no
case exceed the amount of expenses actually incurred for the purpose of such
travel.
Explanation.—For the purposes of this clause, “family”, in
relation to an individual, means—
(i)  the spouse and children of the individual ;
and
(ii)  the parents, brothers and sisters of the
individual or any of them, wholly or mainly dependent on the individual; ]”

Conditions
for the purpose of section 10(5) as Prescribed in Rule 2B of Income Tax Rules-
Extract of Rule 2B
2B. (1) The amount exempted under clause (5) of section 10
in respect of the value of travel concession or assistance received by or due
to the individual from his employer or former employer for himself and his
family, in connection with his proceeding,—
(a)  on leave to any place in India;
(b)  to any place in India after retirement from
service or after the termination of his service,
shall be the amount actually incurred on the performance of
such travel subject to the following conditions, namely :—
[(i)  where the journey is performed on or after the
1st day of October, 1997, by air, an amount not exceeding the air economy fare
of the national carrier by the shortest route to the place of destination;
(ii)  where places of origin of journey and destination
are connected by rail and the journey is performed on or after the 1st day of
October, 1997, by any 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; and
(iii) where the places of origin of journey and destination
or part thereof are not connected by rail and the journey is performed on or
after the 1st day of October, 1997, between such places, the amount eligible
for exemption shall be :—
(A)  where a recognised public transport system exists,
an amount not exceeding the 1st class or deluxe class fare, as the case may be,
on such transport by the shortest route to the place of destination; and
(B)  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, as if the journey had been
performed by rail.]
(2) The exemption referred to in sub-rule (1) shall be
available to an individual in respect of two journeys performed in a block of
four calendar years commencing from the calendar year 1986 :
[Provided that nothing contained in this
sub-rule shall apply to the benefit already availed of by the assessee in
respect of any number of journeys performed before the 1st day of April, 1989
except to the extent that the journey or journeys so performed shall be taken
into account for computing the limit of two journeys specified in this
sub-rule.]
(3) Where such travel concession or assistance is not
availed of by the individual during any such block of four calendar years, an
amount in respect of the value of the travel concession or assistance, if any,
first availed of by the individual during first calendar year of the
immediately succeeding block of four calendar years shall be eligible for
exemption.
Explanation : The amount in respect of the value of the
travel concession or assistance referred to in this sub-rule shall not be taken
into account in deter-mining the eligibility of the amount in respect of the
value of the travel con-cession or assistance in relation to the number of
journeys under sub-rule (2).]
[(4) The exemption referred to in sub-rule (1) shall not be
available to more than two surviving children of an individual after 1st
October, 1998 :
Provided that this sub-rule shall not apply in respect of
children born before 1st October, 1998, and also in case of multiple births
after one child.]

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