Leave Travel Allowance - LTA

What is Leave Travel Allowance?

Leave Travel Allowance (LTA) is one of important component of Salary package, Its an allowance granted by employers to meet the employee's (and their dependents) travel expenses during the year. Employee can take tax exemption on LTA through section 10(5) of Income Tax Act. The main purpose of LTA is to promote Indian tourism industry.

Its not simple as explained above. Following things which will affect tax exemption on LTA:


Who can be covered in LTA: The amount spent on travel should be for self, spouse, children (maximum of two children - if children born after 01 October 1998), parent, brother, sister (any other person who is dependent upon employee).


Travel Area: The LTA exemption is permitted only for travel within India by any mode of transportation i.e. rail, air, road through shortest route. LTA can be claimed only for source to destination place (city) through shortest route. Any amount other than travel like lodging, boarding, food, cab fare, auto fare, driver tip/allowance is not considered for income tax exemption.


Leave Criteria: As per India's Leave Travel Allowance rules, there is no limit on the minimum or the maximum number of days of travel to claim LTA. However in order to make sure that LTA exemption claim is hassle free it is advisable that a minimum of three days of leave from work be taken (this does not include sick leave or holidays or weekends).
 

Tax Exemption Limit: Tax exemption should not be more than LTA provided by employer. For various mode transportation please see below:

If travel by air, Economy air fare by shortest route or amount spent which ever is less can be considered for tax exemption.

If travel by rail, air conditioned first (AC I) Class rail fare by shortest route or amount spent which ever is less can be considered for tax exemption.

If travel by road (source and destination are connected or not through rail), air conditioned first (AC I) Class rail fare by shortest route or amount spent which ever is less can be considered for tax exemption.


Proof: Proof of travel needs to be presented to claim LTA exemption. The tickets (rail / bus) are considered valid proof if journey through rail or any public transportation.

If journey performed through a hired or rental car, the receipt from the travel agency or car rental agency is considered as valid proof. Also toll receipts are considered in tax exemption.

If journey performed through air, boarding pass and ticket are considered as valid proof.

The supreme court said in hearing one of case (between L&T and Income Tax department of India): “The beneficiary of exemption under Section 10(5) (of the Income Tax Act) is an individual employee. There is no circular of Central Board of Direct Taxes (CBDT) requiring the employer under Section 192 to collect and examine the supporting evidence to the declaration to be submitted by an employee(s).”
Refer court appeal.


Claim Period: LTA tax exemption can be claimed twice in block of 4 years. You can not claim LTA twice in the same year. These block of 4 years are predefined by government as below:

01-Jan-2002 – 31-Dec-2005
01-Jan-2006 – 31-Dec-2009
01-Jan-2010 – 31-Dec-2013
and so on

There is an option to carry forward only one LTA claim in next block of four years, but the condition is that claim should be in first year of next block otherwise it will be lapse.

Examples of Tax Exemption on LTA:

Let’s say Person X and his / her spouse are traveling to Bangalore from Mumbai. 
But instead of going from Mumbai to Bangalore, they go from Mumbai to Hyderabad, and then got to Bangalore. 
Person X travel by train in the AC 3 tier category. 
The cost of AC 3 tier train tickets are as follows: 
Mumbai – Hyderabad: Rs. 800 
Hyderabad – Bangalore: Rs. 700 
Bangalore – Hyderabad: Rs. 700 
Hyderabad – Mumbai: Rs. 800 
Thus, Person X spend a total of Rs. 6,000 for two people. 

Now, the shortest route to your destination in this case would be Mumbai to Bangalore. The AC First class ticket costs Rs. 2,350 for this. 
So, round trip fare would have been Rs. 9,400 for two people. 

The amount exempt from income tax is the lesser of these two. Thus, in this example, even when Person X haven’t traveled through the shortest route, he / she can claim income tax exemption for the full amount of Rs. 6,000. 

And what about the actual allowance that Person X get as part of salary? 

Let’s say Person X get a leave travel allowance of Rs. 10,000. 
Would it be fully exempt? 
No. As the amount exempt is the lesser of the amount actually spent and the fare by the defined class through the shortest distance. Thus, the amount exempt from income tax would be Rs. 6,000. The remaining Rs. 4,000 would be taxable, and would be included in income.
If Person X gets a leave travel allowance of Rs. 5,000 then only 5,000 can be exempted from Income Tax.

FAQ on LTA:

When Husband and Wife both receive LTA

In such a case, 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.

Understand FORM - 16

What is FORM - 16?

Every salaried employee in an organization will get the salary after deducting tax by the employer. This process is called as Tax Deduction at Source (TDS).  At the end of financial year, employer must issue a certificate (FORM - 16) which contains the details about the salary earned by that employee and how much tax deducted in a financial year.
In simple terms FORM - 16 is details about the tax deducted by the employer in behalf of employee. The same will be paid to government by the employer.

In terms of Income Tax Act: FORM - 16 is Certificate of deduction of tax at source under section 203 of the Income Tax Act, 1961. Employer provide TDS certificate to the employees on FORM - 16.

Components of FORM - 16 - Understand FORM - 16:

FORM - 16 mainly contains two sections:
Part A
Part B

FORM - 16: Part A

Part A contains following details about Employer and Employees as below:
Name and Address of the Employer.
Name and Designation of the Employee.
PAN & TAN of Deductor -  Permanent Account Number and Tax Deduction Account Number. These numbers are allotted by Income Tax Department. TAN is required to be mentioned in all correspondence related to TDS/TCS.
PAN of the Employer - Permanent Account Number allotted by Income Tax Department. Its employee's responsibility to get it number from IT Department.
CIT (TDS) - Commissioner of Income Tax address where organization located. 
Assessment Year - is different than Financial year. Assessment year is next year for current financial year. For ex. for financial year 2012-13 assessment year is 2013-14.
Period (From - To) - Period from which employee worked in that organization.
Summary of tax deduction at source - details of tax deducted from your salary and remitted to Income Tax Department by employer per quarter. Employer needs to maintain details for each employee.

FORM - 16: Part B

Part B contains details related to income (salary paid by employer & other income) and income tax deducted by employer. It has following sections:

1. GROSS SALARY: 

   (a) Salary as per provisions contained in section 17(1) - includes salary drawn by individual throughout financial year (From April to March - including both months). Salary consists Basic Salary, HRA (House Rent Allowance), DA (Dearness Allowance), Conveyance or Transport Allowance, Medical Allowance, Leave Travel Allowance, Incentives, Bonus, Miscellaneous Allowance.
   (b) Value of perquisites under section 17(2) - includes details from Form No 12BA - which contains fringe benefits or amenities and profits in lieu of salary. For example employer provided accommodation, cars / other automotive, Sweeper/ Gardner/ Watchman/ personal attendant, Gas/ Electricity/ Water, Interest free or concessional loans, Holiday expenses, Free meals, Free education, Free or concessional travel, Gifts/ vouchers, Credit card and club expenses, Stock options. Use of movable assets of employer by employee. Transfer of assets to employees by employer etc covered in this section. In this section above all fringe benefits (contribution of employer - contribution by employee) will be exempted from income tax.
   (c) Profits in lieu of salary under section 17(3) - includes Gratuity, Pension Fund, Provident Fund, Salaries received from previous employer in same financial year (this is applicable if employee joined new organization in middle of financial year). This information should be declared by employee while joining new organization.
  (d) Total = (a) - (b) + (c)

2. Less: 
   Allowance to the extent exempt under section 10 - includes Leave Travel Allowance Exemption [Section 10(5)], House Rent Allowance Exemption [Section 10(13A)], Transport / Conveyance Allowance Exemption & Children Education Allowance Exemption covered under Section 10(14), Payment made towards medical expenditure not more than 15,000/- per financial year covered under section 17(2), Leave Encashment Exemption [Section 10(10AA)] & Gratuity Exemption [Section 10(10)].

3. Balance: 
   (d) Total - 2. Less

4. DEDUCTIONS:
   (a) Tax on Employment - Professional Tax is a tax on employment levied by state government.
   (b) Entertainment Allowance - Entertainment allowance is also extempted from income tax.

5. Aggregate of 4(a) & 4(b): 
   Total of all Taxes on employment / entertainment allowances declared under 4(a) & 4(b). In simple terms its sum of all deductions under 4. DEDUCTIONS.

6.INCOME CHARGEABLE UNDER THE HEAD "SALARIES"(3-5):
   Its total salary earned by employee after deducting fringe benefits, allowances exemptions, tax on employments etc. 
In simple terms: 3. Balance - 5. Aggregate of 4(a) & 4(b) [deductions]

7. Add: Any other Income reported by the employee
   (a) Income under the head Income from house property - If employee has house property and taken home loan on it. Employee can take exemption of interest paid for this home loan. Rent received on this home is not considered as income of individual. Amount displayed against this section is only interest paid for home loan up to 1,50,000/- is exempted. So (-) sign is displayed against amount.
   (b) Income under the head Income from Capital Gains - Any profits or gains arising from the transfer of a capital asset effected in the previous year shall be chargeable to income-tax under the head capital gains. Examples of assets are a flat or apartments, land, shares, mutual funds, gold among many others. There are two type of capital gains: Short term and Long term. There is special method (Concept of Indexation) to calculate the Capital Gains.
   (c) Income under the head Income from other sources - includes dividend, Wining lotteries, racing game, card game, bet, Any annuity due or commuted value of any annuity paid under section 280D, Income from let on hire of machinery, plant, furniture, buildings etc,
   (d) Total - Total of (a) + (b) + (c) under 7. If this amount is negative then (-) sign is displayed before amount.

8. GROSS TOTAL INCOME(6+7)
   Total of INCOME CHARGEABLE UNDER THE HEAD "SALARIES" and Any other Income reported by the employee.

9. DEDUCTIONS UNDER CHAPTER VI - A
   This section contains various tax exemption sections like 80C, 80D, 80CCF, 80E, 80G etc as below:
   (A) Sections 80C,80CCC and 80CCF - includes tax exemption under section 80C, 80CCC and 80CCF. Combined limit of section 80C and 80CCC is 1,00,000/-. 
      (a) Section 80C - includes various deductions like Life insurance premium, PF, PPF, NSC, ELSS etc. For more details refer Section 80C.
      (b) Section 80CC - includes contribution in certain pension fund by employee.
      (c) Section 80CCF - includes infrastructure bonds issued by LIC, IFCI, infrastructure company or any non banking finance company which has been classified as infrastructure finance company by RBI limit up to 20,000/-.
   (B) Other sections under chapter VI - includes tax exemption under sections 80D, 80E, 80DD, 80DDB, 80G etc  as below:
      (a) Section 80D - includes deduction like medical insurance premiym for self, spouse, children and dependent parents. For more details refer Section 80D.
      (b) Section 80DD & 80DDB - includes medical expenditure of disabiliuty or specific diseases of self or dependent. For more details refer Section 80DD & 80DDB.
      (c) Section 80E - includes tax exemption of interest paid for education loan taken for self, spouse or children's education. For more details refer Section 80E.
      (d) Section 80G (100% & 50%) - includes donation towards charitable trust or institution. For more details refer Section 80G.

10. Aggregate of deductible amounts under Chapter VI - A

   This section is the sum of all tax exemption under various above sections like 80C, 80D, 80CC, 80CCF, 80E, 80D, 80DD, 80DDB, 80G etc subject to limit of each section.

11. Total Income (8-10) (rounded off to nearest Rs. 10)

   This indicates taxable income after deductions (various tax exemption, allowances exemptions etc).

12. Tax on Total Income  

   Tax calculated based on total income lies in which slab. For more information refer Income Tax Rates / Slab.

13. Education Cess (on tax at S.no 12)

   Education Cess is calculated on Tax. Education Cess rate will be change by Income Tax Department and will be varied on each financial year. For more information on Education Cess refer Income Tax Rates / Slab.

14. Sec and Higher Educ Cess (on tax at S.No. 12)

   Sec & Higher Education Cess is calculated on Tax. For more information on Sec and Higher Educ Cess refer Income Tax Rates / Slab.

15. Tax Payable(12+13+14)

   Tax payable is summation of Tax, Education Cess and Sec & Higher Education Cess on Tax.

16. Less:

   (a) Tax deducted at source u/s 192(1) - Income tax deducted by employer from salary. Every month employer deduct the income tax from salary and debit to Central Government account.

   (b) Tax paid by the employer on behalf of the employee u/s 192(1A) on perquisites u/s 17(2) - Employer debited the income tax to Central Government account but didn't deduct from employee's salary.

   (c) Tax Deducted by Previous Employer - Tax deducted by previous employer in case if employee changed job through the financial year.

   (d) Tax Deducted from Interest / Others - Tax deducted on interest earned on Fixed Deposit in banks / company for current financial year.

17. Tax payable/refundable(15-16)

   Tax payable less tax paid / deducted in above clauses (16.a to 16.d). 

If employee paid more income tax (more than Tax Payable) then employee should get refund from Income Tax Department, in this case (-) sign is displayed beginning of amount. Employee should file income tax return and get refund from Income Tax Department.

If employee paid less tax then this amount is positive. It means employee needs to pay this remaining income tax. Before filing income tax return employee should pay remaining income tax.

Details of tax deducted and deposited in the Central Government Account through challan

   Every month employer deduct the income tax from salary of employee and deposit to Dentral Government Account. It contains income tax amount, BSR code of bank branch, date and challan number through which income tax of employee deposited to Central Government Account by employer. 

Declaration

   Includes various details like Place, Date, authorized person of employer. Now a days Form - 16 are digitally signed by employer.