What is the Full Form of LTA
LTA: Leave Travel Allowance
LTA stands for Leave Travel Allowance. LTA is a kind of allowance that an employee gets when he/ she is travelling with or without family and, because of that, is on leave from work. In such a case, LTA is given to the employee to cover the expenses that occurred while travelling.
It becomes essential to understand the term "travelling on leave" to understand the topic of LTA better. This exemption is provided under section 10(5) of the Income Tax Act, 1961.
The leave travel allowance given to any employee is not included in his net income of the year, and therefore no income tax will be charged on that allowance (or LTA).
Conditions for claiming Leave Travel Allowance
In order to receive or claim Leave Traveling Allowance, it is necessary that the employee claiming the allowance has recently travelled, is travelling, or is about to travel.
The following condition which should be satisfied to get the travelling allowance is that the travelling for which the leave travelling allowance is asked must be domestic. It means that a trip to Dubai or Thailand from another nation is usually not covered under this allowance.
Exemptions are granted not just to the employee but to the employee's family too. It is important to pay attention to know who is included in the family. In general, the family will include a spouse (wife or husband), children (maximum two), parents who are wholly or mainly dependent, and dependent siblings.
Eligibility Criteria for Leave Travelling Exemption (LTA)
It is not true that the employee will get an exemption for all expenses. Let us see what different measures are required to get an exemption. The exemption will be based only on the travel cost and not on any extra charges. The actual travel costs include the bus, rail or airfare incurred by the employee during the travel.
The bills of the costs or fare should be kept safe to show the expenses incurred. The other expenses, like local conveyance, sightseeing, hotel, food, etc., will not be covered under actual travel costs. The total amount of exemption can be limited to a certain amount while claiming the Employer-provided Leave Travel Allowance.
Let us understand the concept of LTA through the below examples:
Suppose that the Leave Travel Allowance that the employer pays is 40000/-. The eligible travel expenses incurred by the employee is 30000/-. The tax exemption provided to the employee is 30000/-. Then, in such a case, the balance amount, which is 10000, will be added to the taxable salary of the employee.
Suppose that the Leave Travel Allowance that the employer pays is 40000/-. The actual travel cost borne by the employee is 50000/-. Tax exemption on this is 40000/-. In this case, the employer's tax benefit is only 40,000/-. Hence, it will be limited to that amount only.
Can we travel in business class and still be eligible for LTA?
There are some restrictions or, say, limits for this kind of situation. However, the terms and conditions may vary depending on the policies of one company to another. In most cases, LTA for various services is considered or calculated as below criteria:
If the employee is travelling by air, then the employee cannot get compensation more than the economy fare of Air India. Also, the possible shortest route should be taken to complete the travel.
If the employee is travelling by train, then in such a case, the exemption is restricted up to the first-class fare of the train. In this scenario, similarly, the shortest route possible should be taken to complete the journey.
By Public Bus
If the travelling is done by bus, then the fare is restricted to the deluxe bus fare.
Note: All expense bills should be kept safe to get the exemption.
Also, in the case of multi-destination, only the fare incurred while travelling through the shortest route from origin to destination is covered.
Block of Year
Can leave travelling exemption be claimed on every vacation?
The answer is: No. The LTA exemption is usually available only for two journeys performed in a block of four calendar years. In case the employee has not travelled or has not claimed one or two LTA in the last block, then one leave travelling allowance may be forwarded to the first year of the block.