With the Financial Year winding to a close by
end of March and Summary Vacations on the horizon in April-May, many of us are
planning our vacations during the time when our kids don't have School. Many of
us go on yearly outings with family but most people don’t know or don’t use
their Leave Travel Allowance. In fact, many of us would have heard the term LTA
at some point during their careers but don’t bother to use it (including me)
because we fail to appreciate its use and tax benefits.
The purpose of this article is to help you
understand what LTA is and how to use it to reduce your tax liability.
What is Leave Travel Allowance?
Leave Travel Allowance is an allowance that is
usually paid as part of Salary (Annual CTC to be specific) by employers to
their employees. The original idea behind the LTA component was to help the
employee meet his travel expenses. However, of late it has become yet another
component of the CTC and no one cares much about it except how much is paid out
as LTA every year by the employer.
LTA is usually decided for a year and then paid
out on a monthly basis. For ex: If your LTA is Rs. 12,000/- every year, you
will get Rs. 1,000/- every month as LTA.
Many Employers club
together the allowances like House Rent Allowance (HRA), LTA, Medical Allowance
etc. and come up with a final number that is added to the CTC. The employee is
given the flexibility to decide how much of the total Allowance is allocated to
each of the individual components. As LTA isn’t that popular with people, most
of them usually enter a small number there and fail to utilize it properly. In
other cases, company's themselves decide the LTA based on the employee's
designation/experience etc.
Does the LTA Have Tax Benefits?
Of Course YES. Do you think, I will be writing
an entire article if it weren’t important?
How does LTA Affect My Tax Liability?
Let us say your annual Salary is Rs. 6,00,000/-
After all your deductions like House Rent,
Medical bills, Section 80C Tax Savings etc., your Taxable Income is Rs.
3,50,000/-
Let us assume, your annual salary includes a
Rs. 25,000/- LTA component and if you satisfy all the criteria laid down by the
Tax Authorities to utilize the LTA Tax benefits, your Taxable Income will come
down to Rs. 3,25,000/-
Effectively, the entire LTA component of your
Salary became Tax Free!!!
However, Did you read the Sentence "If you
satisfy all the criteria laid down by the Tax Authorities to utilize the LTA
Tax benefits" that I just used above?
Yes, the Tax Benefits aren’t available to
everyone. You need to satisfy the following conditions in order to be eligible
to avail this tax benefit.
Condition No. 1: The Amount should be
spent only on Self and Immediate Family Who is totally dependent on you
By Family we are talking about - Spouse, A
Maximum of two children, Parents, Brothers & Sisters Who are not employed
and are dependent on your income
Condition No. 2: The Travelling Group
should Include the person who is going to claim LTA
If you are not travelling with your family, you
cannot claim LTA for that trip. For ex If my wife, two children and parents
went to Delhi from Chennai, and I stayed back at work, I cannot claim LTA on
that trip.
Condition No. 3: The Amount Claimed should
be for Travelling Expenses Only via the Primary Mode of Travel
By Travelling Expenses, we are talking about
the expenses incurred for the actual travelling part like Train Tickets, Air
Tickets, Bus Tickets etc. Supplementary Travel expenses like Auto Fare, Taxi
Fare etc. are not covered. All other expenses like Food, Accommodation,
Sightseeing etc. are not covered as well.
Condition No. 4: Foreign Travel is not
eligible for LTA
All Trips and Travels within the country of
India only are eligible for LTA Exemption under the Indian Tax Laws
Condition No. 5: Travel Expenses are
Considered only for the Shortest Route Possible
LTA Exemption can be claimed only corresponding
to the fare that will be incurred if you take the shortest possible route. If
you are travelling from Chennai to Bangalore, the amount you can claim is for a
train/bus/flight that goes directly from Chennai to Bangalore. If you go from
Chennai -> Hyderabad -> Bangalore for some strange reason and try to
claim the two-trip expenses, it will not be approved. You have to either submit
expenses for the Chennai -> Hyderabad -> Chennai trip or book tickets in
a direct trip from Chennai to Bangalore
Condition No. 6: You can claim LTA only
Twice in a Block of Four Years
You could claim LTA exemption in respect of any
two journeys in a block of four years. The current block is 2010 to 2013. Say
for example, you claim LTA exemption in 2010, then you could claim just one
more till 2013. Remember - You cannot Claim LTA Every year.
There is some confusion about whether LTA
follows the financial year or the calendar year. LTA Year blocks are always
based on calendar year. So, it goes from Jan 2010 to Dec 2013 for the current
block. The claim can be done in the financial year that the travel actually
happened. If you traveled between April to Dec 2013 you can claim it in the tax
returns you will be filing in 2014 for the financial year Apr'13 to
Mar'14.
Condition No. 7: If Husband and Wife both
receive LTA, They cannot claim the same Trip
If Husband and Wife both receive LTA as part of
their salary, both of them could claim LTA individually as the rules of LTA
apply individually to each of them. So in a block of four years, each spouse
can claim LTA twice. The only restriction is that both spouses cannot claim an
LTA exemption for the same journey. In other words, LTA cannot be claimed twice
for the same journey.
Condition No. 8: You must have been on
earned/annual leave on the dates for which you are claiming the LTA. You cannot
claim LTA for days when you were working. You must have applied for annual or
earned or paid leave (whatever you may wanna call it) and got it approved in
order to claim LTA. There is actually no limit on the minimum or maximum number
of days you need to apply for leave to claim LTA. But, for easier
claims/processing try to utilize at least 3 consecutive days of annual leave
for LTA purposes.
As you can see, though LTA can be pretty useful
in reducing your tax liability twice in a block of four years, it isn’t
straightforward and involves a lot of Conditions. If you intend on claiming
LTA, make sure that you Remember these 7 conditions above.
After reading the above conditions, you would
definitely have a few questions that are lingering in your mind. I have tried
to answer a few of them below. If you have any more questions, please feel free
to leave a comment and I will do my best to answer them.
1. Can I fly Business Class and claim
LTA?
No. For air travel, the maximum amount that can
be claimed as exemption is the economy class air fare.
2. What is the Maximum Fare I can claim as LTA
while travelling by Road or Rail?
For rail or road, the maximum amount that can
be claimed as exempt is the air conditioned first class rail fare to your
destination by the shortest route.
3. What happens if I did not make a claim in
the current block? Do I get any benefits for the next block?
In case you don’t avail of the LTA exemption in
a particular block, whether for both the journeys or for just one journey, you
could carry forward one journey to the first calendar year in the next
succeeding block of four years. Thus, in the next block of four years, you
could claim the carried forward travel, plus, two journeys of that particular
block i.e. a total of 3 exemptions!
For ex: Let us say you are entitled to an LTA
of Rs.10, 000 per year and you do not utilize it in the block 2010-2013. This
amount could be carried forward in the next block of four years. You must
therefore claim this amount in 2014 and then you can further more claim your
LTA entitlement of that particular block (2 more times i.e. 10,000+10,000) as
well.
4. How does One claim an Exemption?
As most of us are salaried employees, you can
submit evidence for the travel (tickets/bills etc.) to your employer and they
will include it in your form 16. If you are self-employed or missed submitting
LTA to your company, you can avail the services of any chartered account who
helps file Tax Returns for people and they will be more than happy to include
this along with your tax calculations.
5. What happens if I spend more than my LTA
amount?
In case your travel expenses exceed your actual
Leave Travel Allowance amount, the exemption you can claim is limited to your
LTA Amount. For ex: If your LTA is Rs. 25,000/- this year and you incurred Rs.
40,000/- in air fares for a family trip, your LTA Exemption will be limited to
Rs. 25,000/- and the remaining Rs. 15,000/- will not give you any tax benefits.
6. What happens if I don’t exhaust my LTA
amount?
In case your travel expenses are lesser than
your actual Leave Travel Allowance amount, the exemption is limited to the
actual amount spent. For ex: If your LTA is Rs. 25,000/- this year and you
incurred Rs. 15,000/- in rail fares for a family trip, your LTA Exemption will
be limited to Rs. 15,000/- and the remaining Rs. 10,000/- will not give you any
tax benefits.
7. I Traveled more than once in a single
financial year. Can I claim both for LTA?
Yes.
8. I booked a tour via a travel operator as a
Package. Can I claim the entire amount as LTA?
No. Only the actual amounts spent on
Road/Air/Rail transport can be claimed. Other expenses cannot be claimed as
LTA.
The idea here is - We will go on vacations with
our families irrespective of the Tax Benefits we get out of it. However, if we
can get tax benefits, why waste it.
Happy
Vacations!!!
Source : http://anandvijayakumar.blogspot.in/2013/02/everything-you-need-to-know-about-leave.html
Source : http://anandvijayakumar.blogspot.in/2013/02/everything-you-need-to-know-about-leave.html
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