Planning a trip comes with numerous advantages, offering a much-needed escape from the daily routine and promoting mental and emotional well-being. Taking a break helps reduce stress and recharge, but the financial burden of travel can often be overwhelming. Instead of providing the relaxation you seek, the costs involved can sometimes add more stress, overshadowing the benefits of the vacation.
Many tax incentives and exemptions are mentioned under different parts of the Government of India’s Income Tax Act, 1961. Among these is the allowance of reimbursement for employee travel while on leave.
A crucial and practical component of financial planning is leave allowance, or LTA, which can provide multiple tax benefits in addition to aiding with travel expenditure coverage.
Employees in India are given an allowance called LTA to help cover their within-country travel expenses. Employees who take a break from work to travel with their families can claim the tax-free component.
What is Leave Travel Allowance (LTA)
Leave Travel Allowance (LTA) refers to the component of an employee’s compensation designated for travel expenses. Employers extend this benefit to their staff, covering their travel costs during periods of leave from work, subject to a specified limit.
The Income Tax Act of 1961’s Section 10(5) exempts LTA from taxation. Subject to a few restrictions and conditions, employees may claim a tax exemption on the amount received as LTA under this provision.
Every company has its own Leave Travel Allowance (LTA) policy, which varies depending on a number of criteria, including the job and salary of the employee. As a result, an employer may decide to offer leave of absence (LTA) to a worker in compliance with the specified policy, either for the worker alone or for the worker’s immediate family.
Benefits Of Leave Travel Allowance
Leave Travel Allowance offers various tax exemptions and benefits to salaried employees in India:
- LTA employees can deduct their travel expenses from their taxes when taking family members on vacation or field trips. This exemption reduces the employee’s taxable income.
- LTA encourages staff members to take time off and vacation with their family. It advances travel and aids in the expansion of the travel sector.
- Since LTA is a tax exemption on travel expenses, it helps in reducing the overall cost of the trip for the employee. This is beneficial for both the employee and the employer.
- LTA allows employees to take time off work and spend quality time with their families. The aforementioned contributes to the establishment of a harmonious work-life equilibrium and enhancement of employee morale.
- Employees eligible for LTA exemption can enjoy freedom in vacation planning.
Leave Travel Allowance Calculation
Here are two examples of how LTA can be utilized:
- Suppose an employee has an LTA component of Rs. 50,000 as part of their CTC. The employee plans a trip to Kerala with their family and incurs travel expenses of Rs. 40,000. The employee can claim the LTA exemption on this amount, and the remaining The amount of Rs. 10,000 will be taxed according to the income tax slab of the employee.
- Another employee has an LTA component of Rs. 1,00,000 as part of their CTC. The employee decides to take two vacations in a year, one to Goa and the other to Andaman and Nicobar Islands, and incurs travel expenses of Rs. 60,000 and Rs. 40,000, respectively. The employee can claim the LTA exemption on both trips separately, and the remaining amount will be taxed according to the employee’s income tax bracket.
Carry forward and taxation of unclaimed LTA
If an employee hasn’t used the exemption for one or two trips in any of the four-year blocks, they can carry over the unused exemption to the next block. However, they must utilise this benefit during the first calendar year of the subsequent block.
Leave Travel Allowance Block Year
The Government determines a block year distinct from a financial year for LTA exemption purposes, spanning four years each. Originating in 1986, the initial 4-year block set the precedent. Subsequent block years include 1986-1989, 1990-93, 1994-97, 1998-2001, 2002-05, 2006-09, 2010-13, and onwards. The current block applies to the calendar years 2022-2025.
Conclusion
Leave Travel Allowance (LTA) is a valuable employee benefit and it gives people the opportunity to discover new things, innovate and create lasting memories. By utilizing LTA, employees can rejuvenate, gain fresh perspectives, and enhance creativity, all while creating lasting memories with their families. LTA not only offers financial relief through tax savings, but it also encourages employees to take time off and explore new destinations.
