LTC: Plan holidays during the year, save taxes at the end of year


(Last Updated On: November 12, 2016)

" I am so tensed. My children are continuously forcing me to take them for holidays. But I am worried about the expenses to be incurred. Although I can manage accommodation and other expenses thereon but travel expenses shall affect my budget badly.”

Many of us who are salaried face the same dilemma . In the present circumstances, it becomes a critical issue for a person to plan his holidays due to high cost of transportation i.e Holidays can mean heavy expenses. However if you are a salaried individual, you can use the same vacation to save an tax outgo.  Shocked?? You want to know how, the simple answer is LEAVE TRAVEL ALLOWANCE . Your organisation grants you LTA ( Leave Travel Allowance ) as a part of your salary package.

What is Leave Travel Allowance ?

LTA is the remuneration that you get from the employer when you are on leave with the family or alone. It is the most common form of tax exemption given to employees by most employers. It is not allowed for overseas destinations. Leave Travel Concession includes the cost of travel only; it doesn’t include cost of accommodation & other costs. You can claim LTC on the basis of expenses actually incurred by you on traveling to any place in India either on holiday or on leaving the job and going to any other place either to take up another job or otherwise.Travel cost of family members can also be claimed under LTC. For this purpose, family includes your two children, wife whether dependents or not, your siblings and parents who are mainly dependent on you.

Taxability of LTA-

Different employers give different amount as leave travel allowance depending upon the position at which employee is working.  LTA exemption comes under section 10(5) of the Income Tax Act. The amount of LTA received is taxed as:

LTC received XXX
(-) LTC Exempt (XXX)
Amount Chargeable to tax XXX

You can get the exemption only for the amount you are eligible for and not for the actual amount spent on your travelling. For Example, if your LTA amount is INR 25,000/-, but you have spent INR 30,000/-, you'll get an exemption only for INR 25,000/-. And if you have spent INR 15,000/-, you'll get an exemption of INR 15,000/- only and on the remaning of INR 10,000/- you'll have tp pay tax.

Exemption of LTA –

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When can you travel?

You can claim exemption for upto two journeys in a block of four calender years.  Current block is 2014-17 . For Example, if you travelled during the month of january 2014, it will fall in this block, since it is applicable on calender year.

If you don’t perform one of the two journey or both journeys in a block; you can carry forward the journeys to next block but the same has to be used in the first calendar year of the next block. You can perform both the journeys in a single calender year also.

What if both husband and wife are eligible for LTA?

If both spouses are eligible for LTA,  then both of them can claim LTA individually. But they can't claim LTA for the same journey. They can claim the exemption for separate journeys or divide the expenses.

Other Relevant points:

  • If LTC is encashed without performing journey, no LTC exemption shall be allowed and entire amount received by employer would be taxable.
  • Family for this purpose means the spouse and 2 children. It also includes parents, brothers and sisters of the employee who are wholly or mainly dependant on him.
  • The exemption can be taken for the journey undertaken while on leave during the tenure of service oe even after rretirement / termination of service.
  • LTA exemption is only available in respect of fare.

So plan your holidays; enjoy the trip. Come back, claim the LTC & save taxes.

Still confused whether you shall get the correct LTC exemption??? Or about claiming exemption with regards to block system? Tell us through mail/ comments. We are always looking to help you.

CA Abhishek Soni

Abhishek Soni is a Chartered Accountant by profession & entrepreneur by passion. He is the co-founder & CEO of Tax2Win.in. Tax2win is amongst the top 25 emerging startups of Asia and authorized ERI by the Income Tax Department. In the past, he worked in EY and comes with wide industry experience from telecom, retail to manufacturing to entertainment where he has handled various national and international assignments.