Leave Travel Allowance (LTA) is my favorite allowance. As per LTA, the government gives us tax benefits for our holiday. It is the best tax saving scheme ever – as I just don’t save tax, I take a vacation too!!
As per this allowance an employee gets to cover his travel expenses when he is on leave from work by his employer. Sometimes it is also known as Leave Travel Concession (LTC). LTA is exempt from tax u/s 10(5) of Income Tax Act, 1961.
It is the travel concession or assistance received by you (an employee) from your employer for yourself and your family towards your travel expenses within India while you are on leave from work or post-retirement or termination of service.
Family includes:
Spouse of individual
Children of individual
Parents of an individual (mainly or wholly dependent on the individual)
Brothers and sisters of an individual (mainly or wholly dependent on the individual)
Lets plan and travel from the tax perspective this time
There are certain rules that are to be followed:
LTA amount is generally fixed by the employer and is a part of your compensation structure (refer our article Understand your salary structure)
Thus, the relevant expenses incurred up to the specific limit are tax-free.
To claim the benefit, you must have a copy of your travel tickets and bills.
Expenses incurred only on traveling are permitted. Expenses made on food, shopping, etc. are not tax-free.
One drawback is that you cannot claim tax-free LTA each year. An exemption is allowed for only two travels within a block of four years.
LTA covers only domestic travel, i.e. only within India. International travel is not covered under this.
What are LTA block years?
An employee cannot decide his/her own block of four years depending on when they start the job. The blocks are fixed in the income-tax act. Exemptions can be claimed twice during each block period.
The current block consists of the following 4 years 2018, 2019, 2020 and 2021.
List of Expenses Exempt under LTAIn case of travel by air
The economy airfare of national carrier by the shortest route or the actual amount spent on travel whichever is less is exempt from tax.
In case oftravel by rail
The A.C. first class rail fare by shortest route or actual amount spent on travel whichever is less is exempt from tax.
If the origin and destination spots of the journey are connected by rail but the journey is performed by other modes of transport and not air or rail
The A.C. first class rail fare by shortest route or actual amount spent on travel, whichever is less is exempt from tax.
If the origin & destination points are not connected by rail or air (partly/fully) but connected by other recognized Public transport system
The first class or deluxe class fare of such transport by shortest route or actual amount spent on travel, whichever is less is exempt from tax.
If the place of origin & destination are not connected by rail or air (partly/fully) and also not connected by other recognized Public transport system
The AC first class rail fare by shortest route (assuming that the journey was performed by rail) or the amount actually spent on travel, whichever is less is exempt from tax.
What is Carryover Concession?
If you did not use LTA provided by your employer either once or twice (the permitted limit) in a 4 years block period, then you can still claim LTA exemption by using LTA in the year immediately succeeding the 4 years block period. It is known as carryover concession.
For Example, Mr. Shah claimed only one exemption during the 7th block of years which lasted from 2014-17. He still has one exemption remaining. So when can he claim it? He can claim this concession in the next year, i.e. 2018 which is a part of the next block. So, in the next block of 2018 – 2021, he can claim 3 exemptions in total but he needs to claim carryover concession of the previous block (2014-2017) in 2018 only and not later than that.
Example 2 – Mr Iyer had a LTA of INR. 30,000 per annum, in his compensation structure.
He did not travel anywhere in 2018 and thus, no LTA was claimed by him. He transferred the same to 2019.
He traveled in 2019 incurred an expense of INR 40,000
He submitted the proofs and will get an LTA of INR 40,000 from his employer. All of this is tax free INR 30,000 from 2018 and INR 10,000 from 2019.
In 2020, he again traveled and thus, claimed LTA of INR 35,000 which was given to him tax free from his employer.
In 2021, balance INR 45,000 was paid to Mr Iyer (INR 120,000 – INR 40,000 – INR 35,000).
However, Mr. Iyer will get only INR 36,000 in hand as INR 9,500 was deducted towards taxes by his employer indicating that the same was not tax-free.
Mr. Iyer has claimed the LTA twice in 4 years i.e. 2019 and 2020 and thus the balance payment received in 2021 was not tax-free.
You will have to check with your employer to check on this carry forward of LTA balance to next year. Some employers prefer clearing the balance in the same year itself.
Thus, if you want to save taxes on your salary, take a vacation with your family in India and maintain all your travel tickets to claim the LTA benefits. LTA is the only allowance which lets you travel and save taxes. In spite of LTA being such an easy allowance, many people do not claim LTA (i.e. they do not submit appropriate forms and proofs to their HR teams within valid timelines) and end up paying taxes on their LTA allowance.
A friend was duped into buying an HDFC life insurance policy when she had just started to work with her first employer. Being new to tax planning, she was sold the policy stating that payment of INR 50,000 per annum for the next 7 years will get her INR 1,000,000 at the end of 15 years.
The friend got a call on her landline asking for her insurance needs. Her mother gave her mobile number to the insurance agent and asked her to coordinate with him. She was so occupied at work that she bought whatever insurance he sold to her convincing her that the investment would double in 7 years and the insurance will also give her tax benefits.
We have in detail discussed in our Article – Why you must buy a term Insurance and Insurance v/s mutual funds as to how the money grows and multiplies and why you should not fall prey to the terms – ‘double your investments_________.’
I went with my friend to surrender the policy at the HDFC Insurance office and was surprised to see that around 10 people were waiting to surrender their insurance policy on a Friday afternoon.
Why are the policies missold
The Insurance agents get a commission ranging from 40% to 70% on the premium amount paid towards insurance making insurance the most marketed financial product in the world.
This commission is just not for the first-year premium. In some cases, they get it for the first 3 years 40% and the balance 3 years 20%. The high commission makes insurance a very lucrative product to sell.
New ways of misselling
The case of misselling has worsened since people have started getting spurious calls in the name of regulatory organizations and government or quasi-government authorities. Recently some gangs have been exposed to a new scam in the Insurance Sector “Fake calls from IRDA”.
This scam is to trap the existing policyholders who are not satisfied with their existing plan and are not getting desired returns, bonuses, or claims.
• They get calls from people pretending to be representatives of IRDA.
• They claim that this call is on behalf of IRDA to address the complaints and grievances of the policyholder.
• The person receiving such a phone call gets convinced and starts sharing the problems faced with the existing insurance policy.
• On understanding the issue of the policyholders, these tele-callers convince that they will get the refund of the existing policy and the policyholder can withdraw the actual amount of the premium paid to the company.
• These callers, the fake IRDA representatives, keep complete knowledge about the functioning of insurance companies, regulatory authority, and norms and then they make the other person convinced confidently and smartly with their conversation.
I have also received calls from IRDA asking if I had any issues or if I should own a good insurance product. They are regulatory bodies and hence, it is very easy for people to believe them.
When I told them to send me an email, they started abusing me over the phone and spoke to me in a very irresponsible way. I immediately knew that they are imposters and cut the call.
How should one be cautious of such spurious calls?
1. Do not entertain any insurance provider over a phone call; always ask them to drop an email from their official email ID, providing you with the offer and other details.
2. It is very important to educate your parents about the same. It is very easy to obtain the landline numbers and sell the same to housewives with little or no knowledge about these calls. They end up giving their debit card/credit card pins.
3. Report all the telephone numbers when you receive a call from one, claiming to be a fake LIC agent or the IRDA regulators.
4. IRDA has issued a public notice to state that the regulator never makes any calls. "The general public is hereby informed that the Insurance Regulatory and Development Authority is a regulatory body which does not involve directly or through any representative in the sale of any kind of insurance or financial products," a public notice posted on its website said. It further adds that if you make any kind of transaction with such a fake agent, you would be doing so at your own risk.
5. Likewise, if you receive calls from an agent claiming to be from LIC or any other insurance company for that matter, it's best to disconnect the call.
6. If an agent asks you to pay cash, it should be an immediate red flag. According to the LIC's advertisement, when you buy an LIC policy, you should register the same on their portal for easier management of the policy. Even for other private insurance companies, always register on their website and refer to the same for any problems and updates.
7. When an agent visits you, you should check his/her license, issued by the insurance company. But, then, we think it isn't too difficult for fraudsters to make fake licenses. So, maybe paying a visit to the insurer’s branch office or buying a policy online via the company's website or online insurance portal, would work better.
8. Register your policies online on the websites and other private insurers to avoid any communication with an agent. You can coordinate with the insurance providers over email.
These are basic solutions and common sense ways to deal with the problem of spurious calls. However, as many of us are too occupied with work and other commitments, we do not spend too much time sorting our investments becoming prey to such scams.
It is your hard-earned money that is being invested in various financial products and hence, you must be cautious about how you manage the same.
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