Demystifying LTA exemption

Claiming Leave Travel Assistance (LTA) benefit has always been a puzzle for many. Some of us even settle to pay additional tax instead of claiming the Income Tax benefit associated with LTA. Here is your primer to know all about LTA exemption.

LTA Income Tax benefit

LTA or LTC is exempted under section 10(5) as per detail given below :

LTA/LTC received from employer to proceed on leave to any place in India for himself and his family is exempted.
LTA/ LTC received from employer or former employer received in connection with proceeding to any place in India after retirement/termination for himself and his family is also exempted
The exemption is allowed only if an actual expense has been incurred.

Exemption is allowed on two journeys in block of four years. The block from 2006–2009 has just ended and the new four year block applicable from January 1, 2010 to December 31, 2013. By the way, unlike other income tax provisions, LTA block of four (4) years are based on calendar year and not the financial year.

Use our Income Tax Calculator for financial year 2009-10 to know how much you can personally save on income tax if you claim LTA exemption.

Carry forward LTA exemption to next block

If you have not availed any LTA/LTC exemption in last block of four years (single or both) than you can carry forward one exemption in first year of next block of four years. This means if you can perform journey in first year of the next four year block. This carry forward will have no impact on your entitled two journeys of the next LTA/LTC block.

Meaning of Family for LTA exemption

For the purpose of claiming LTA/LTC exemption, your family would include your spouse, children, parents, brothers and sisters who are wholly or mainly dependent on you.

There is another caveat regarding inclusion of children for LTA/LTC exemption. The exemption is allowed only for two children if born after October 1, 1998. This restriction does not apply to Twins or multiple births after birth of first child and if your children were born before October 1, 1998.

Entitled amount for LTA Exemption

The amount of exemption entitled to be claimed under LAT/LTC benefit depends on the mode of transport you take for travel. Further, the exemption is capped to actual expenses incurred by you. This means you can claim exemption only if you have actually performed the journey.

If you travel by Air, then the economy Air fair of national carrier by the shortest route or the amount spent which ever is less is exempted. If you choose to travel by train then you are entitled to claim exemption of amount equivalent to A.C. first class rail fare by shortest route or amount spent which ever is less.

When the place of origin and place of destination of journey is connected by rail but journey you travel by other mode of transport, then also A.C. first class rail fare by shortest route or amount spent by you for traveling which ever is less is entitled for exemption.

If the place of origin and place of destination is not connected by rail partly or fully, but is connected by other recognized public transport system, then you can claim exemption of first class or deluxe class fare by shortest route or amount spent which ever is less.

It is worthwhile to note here that exemption is allowed only for travel fare. Other expenses such as amount spent on local conveyance, taxi charges, boarding and lodging, etc are not covered under LTA/LTC for exemption.

Since it is the calendar year and not the financial year, it will be from January 1, 2002 to December 31, 2005.