If not claimed, LTA will be clubbed with Special Allowance in salary

I am still in the old tax regime and have not claimed LTA exemption since FY20. My company confirms that it was paid along with my salary. How do I show this in my returns as an exempted allowance?

-P Amareswara Rao, Nellore

Leave Travel Allowance (LTA) is a concession provided to private sector employees by their companies or the employers. Leave Travel Allowance is provided for travelling while on leave and is claimed as an exemption under the Income Tax Act. Employees usually get leave travel allowance as part of their cost-to-company (CTC). LTA reimbursement is not included in one's taxable income. Those employees who fulfil the eligibility for Leave Travel Allowance can claim reimbursement of expenses incurred on domestic travel. LTA is subject to fulfilling certain conditions and some limits stipulated under the Income Tax Act.

Firstly, the Leave Travel Allowance can be claimed only against travel expenses incurred in India. No foreign travel and international tour expenses are allowed under LTA reimbursement. Domestic travel expenses for the employee and family, including spouse, children, and dependent parents, are permitted for claiming the LTA benefit. Regarding children, the exemption is restricted to two surviving children unless the birth after one child has resulted in twins, triplets, or multiple births. The LTA exemption does not apply to more than two of the person's children who were born after 1 October 1998. However, the restriction does not apply to children born before 1 October 1998.

The private sector employees are permitted to claim the Leave Travel Allowance up to two times in a block of four years, which means only two trips or journeys undertaken twice in a block of four years will be exempted from income tax. A block comprises four years for LTA exemption purposes, and a block is different from a financial year. The income tax rules define the LTA block years.

The current block for Leave Travel Allowance (LTA) exemption is from 1 January 2022 to 31 December 2025. In other words, the current block is spread over calendar years from 2022 to 2025. The previous block was spread over from the calendar years 2018 to 2021. The employees who are claiming LTA must have taken leave from work during the period of the travel dates mentioned in the LTA claim. The amount received as LTA is tax-free up to a specific limit under Section 10(5) of the Income Tax Act, 1961. That's why employees consider LTA as an exemption from their taxable income. In the pandemic scenario, as travel was restricted, the government made an exception through the LTC Cash Voucher Scheme.

To avail of the Leave Travel Allowance exemption, the fare and mode of travel must be accurately selected before booking the tickets, as one needs to provide legitimate evidence of expense, to avail of the leave travel reimbursement and tax exemption. Travel modes, including air, rail, and road travel, are admissible under LTA. Only the actual cost of an economy-class airline, train, cab or bus fare will be allowed to claim LTA. If the mode of travel or means of transport other than airlines and the destination is connected through rail, the cost of first-class train fare through the shortest route or the expense incurred, whichever is less, can be permitted as an exemption. The travel ticket cost will only be considered. Lodging and boarding, including the hotel expense or money spent on accommodation, and food, is not allowed to claim for getting an exemption. The LTA exemption is permitted in case of air travel is the lower of the economy class ticket fare of the national carrier (if any) by the shortest route or the actual fare incurred, whichever is less. One can travel by private airline if there is no national career. In the case of the train journey, the Leave Travel Allowance exemption amount for tax exemption is the lower of the air-conditioned first-class ticket fare by the shortest route or the actual expense incurred. The same rule applies to the journey undertaken by any other mode, such as a private taxi, and the place of origin and destination are connected by train journey.

The employees of the private sector who want to avail of the LTA reimbursement as an income tax exemption need not just travel from one destination to origin but can travel to multiple locations in a single trip. However, the LTA tax break is limited to what is permissible for the journey from the place of origination to the farthest point reached by the shortest route, if the trips are taken in a circular form touching different routes and destinations. The government and income tax department allow the carryover of the LTA exemption to the next block if a private company employee has not claimed the LTA for one or two permitted journeys in a particular block of four years. The employee will be entitled to carry one journey to the next block. The exemption will be available for three trips in the next block in such a situation.

I am assuming you are working for a private company. If you do not claim the Leave Travel Allowance before the month of March of a particular Financial Year, the LTA allowance, which is part of your CTC, will be clubbed with the Special Allowance. The same will be paid along with the salary for March after deducting income tax as per the respective tax slab. Unless you travelled to some destination as per IT Rules, you cannot claim the LTA amount as a tax exempted allowance in your ITR. Under the new tax regime (NTR), some deductions and exemptions, including LTA, cannot be claimed. Hence, assessees who opted for the new tax regime (NTR) are not eligible to claim the Leave Travel Allowance and will forgo this allowance.

(The author is a SEBI licensed Research Analyst. The alumnus of the Indian Institute of Foreign Trade (IIFT), he had held leadership roles at National Geographic, Reliance Radio Television Luxembourg, STAR TV)