LTA related questions

As the name itself suggests, it is an exemption for allowance/assistance received by the employee from his employer for travelling on leave. Though it sounds simple, many factors need to be kept in mind before planning the trip to claim an LTA exemption. Income tax provision has laid down rules to claim exemption of LTA.

Frequently Asked Question

Q1. How much can I claim tax exemption in Leave Travel Allowance or LTA?

A. The amount of LTA exemption depends on the LTA component in your compensation package or CTC. You can furnish proof of travel within the block period and claim up to the amount prescribed in your CTC.

Q2. What is the latest block period to claim LTA exemption?

A. The latest block period of four years is from 1 January 2018 until 31 December 2021.

Q3. How many trips can I make in one year to claim the exemption?

A.You can claim LTA exemption only for one trip in one calendar year.

Q4. Can we carry forward unclaimed LTA?

A. Yes. An employee can carry forward one trip to the next block year. This means in 4 block years, he can claim one trip and one trip he can carry forward to the next block year. During the next block year, instead of 2 trips, they can undertake 3 trips and claim LTA benefits. However, this has to be communicated to an employer so that they can make provisions in their books.

Q5. Can I claim an LTA benefit for the travel costs of my family?

A. You can claim LTA benefit for the travel costs of yourself, your family consisting of your spouse, children, dependent parents, brothers, and sisters of the employee.

Q6. How many kids are eligible to travel to get an LTA benefit?

A. 2 kids are eligible to travel to get LTA benefits. In case there is a triplet kid, due to twins, such twins would be considered as one kid for this purpose.

Q7. If an employee does one trip but visits multiple places, is he eligible to claim LTA?

A. The income tax rule indicates that LTA can be claimed for the shortest distance between the starting point and farthest point. In between, if there are more places to visit, you can do that.

Q8. Can I claim LTA by travelling abroad?

A. LTA can be claimed for travel taken within India. You cannot claim foreign trip expenses for LTA benefits.

Q9. What mode of travel is eligible for claiming LTA?

A. In the case of air travel, economy class is eligible.

In the case of train travel, up to the first AC is eligible.

In the case of road transport, a rented vehicle/bus of any kind is eligible to claim LTA benefit.

Q10. If an employee travels at the end of the year and returns from a trip which falls beyond 31st Dec, how does it work?

A. In such cases, employees need to consider the starting date as a basis and claim for that calendar year.

Q11. If an employee travels at the end of the block year and returns from a trip after 31st Dec which falls in a different block year, how does it work?

A. Block year for the current LTA period is from 1-Jan-2018 to 31-Dec-2021. Assume that you want to claim your 2nd LTA amount and plan your trip from say 25th Dec 2021 to 5th Jan 2022. Since 1-Jan-2022 onwards is a different block period, you can still claim this trip under the 2018-2021 block period.

Q 12. I missed submitting my first LTA claim in a block year. Can I submit 2 LTA claims in a block year later?

A. As per IT Rules, an employee needs to claim 2 trips LTA in a block of 4 years. However, if you have missed a claim in the first 2 years, you need to indicate this to your employer, so that they can carry it forward to the subsequent 2 years of the same block year. You can later submit the bill of the first 2 years (bill date should indicate that) and claim it. However, you cannot claim 2 trips expenses in the subsequent 2 years of a block period (with bill dates of the 3rd and 4th year of a block period).

Q13. Do I need to submit a single bill for our trip or multiple bills would be accepted for LTA?

A. LTA benefit is given for a trip. This means, one family is travelling. Ideally, there would be one bill. However, there are cases where multiple bills would be received for a single trip (for airfare bills, where a family member agreed to join later and the booking was made later, but the travel date is the same for the remaining members). In such cases, these are agreed upon by employers. It would be better to check with your employer in such circumstances before proceeding further.

Q 14. How can we claim LTA even without travelling?

A. Due to the Covid-19 pandemic, many people are not in a position to travel with family, and, therefore, LTA can be claimed even without travelling. For claiming the LTA exemption,

Conditions to be fulfilled for claiming LTA exemption under the scheme

3 times the amount of LTA earned to be spent
Goods and Services to be purchased from registered GST dealer
Payments to be done only through digital modes
All Invoices of the purchase has to submit to the employer

Tax - 12/15/2021

Leave Travel Concession Cash Voucher - new ways to claim your LTA

Hello fellow investors,

It is that time of the year where we all start planning to submit your tax proofs to claim tax deductions. One such claim is the Leave travel allowance. Given that, none of us are really venturing into travel, a new component of leave travel concession - a cash voucher was introduced for salaried individuals.

This leave travel allowance (cash voucher) scheme initially announced for central government employees has now been extended to all other employees with riders to boost consumption during the festive season and also help you get tax deduction. The government has announced that all non-central government employees will be eligible for income tax exemption for the entire leave travel concession amount up to Rs 36,000 per person without producing travel bills. However, such employees will have to spend three times the amount for purchasing goods or services on which GST of 12% or higher is levied, said a press release from the Central Board of Direct Taxes.

Employees will have to make purchases through digital payment mode and submit the invoices to avail of the benefit.

What’s LTC For Private Sector?

Unlike government employees, their private-sector peers have a part of their salary or cost to the company, structured as leave travel concession. This is done to save tax on the total income of the employee. By showing travel expenses, the employee can avail of the income tax exemption on the travel amount. Those who haven’t availed of this benefit during 2018-21 would be eligible for the tax exemption.

Points to Note:

The employee exercises an option for the deemed LTC fare in lieu of the applicable LTC in the current block (the year 2018-21);
The employee spends a sum equal to three times the value of the deemed LTC fare on purchase of goods/services which carry a Goods and Services Tax (GST) rate of at least 12% from GST registered vendors/service providers through digital mode;
The expense is made between 12 October 2020 and 31 March 2021; and
The employee obtains the voucher indicating the GST number and the amount of GST paid.

What Government Is Offering An employee?

An Employee who has not availed LTC during 2018-21 would be eligible to avail of the tax exemption subject to the condition that the person spends three times that amount on goods or services with GST of 12% and above.

Those who spend less than three times the fare amount will get proportionate income tax exemption. For example, if the LTC fare is Rs 20,000, and is claimed for a family of four, then the employee would get Rs 80,000 (20,000 x 4). The amount that the employee will have to spend would be Rs 2,40,000 (Rs 80,000 x 3). However, if the employee ends up spending only Rs 1,80,000, the person would get tax exemption of Rs 60,000 (75% of 80,000 or 1/3 of 1,80,000).

Thus, this income tax benefit may actually be considered as a discount on expenditure, which the employee has already planned to incur, instead of a reason to incur expenditure. On the other hand, income tax foregone by the Government may be offset by the additional GST revenue on expenditure incurred by the employees.

It is advisable to check with your HR department and your employer to see if the policy is modified to include the leave travel concession component and how you can claim this benefit for yourself. It was initiated to encourage people to shop more and take tax benefits on the same, so don't rush to buy new items but if you are buying anything, ensure you have GST documents of the same to claim tax benefits under LTC.

Debt / Equity / Investments / Money tips - 11/27/2020

Reduce taxes without investing any money

‘People in my office were suggesting me as to how I should make a fixed deposit from now itself to save my taxes at the end of the financial year.’ ‘Do I have an LIC policy? Do you think that would be enough to avoid taxes on my payslip?’ ‘I do not have money at the end of the year to invest to reduce taxes.’ I am sure most of us have either said such statements or heard people make them. Irrespective of the above, most of us do wonder why our salary is being taxed and we want to know how to avoid paying taxes or pay the least possible taxes ever. I have mentioned ways to reduce your taxes without making any investments i.e. just by understanding your salary structure and its components. It is very important to know that the entire CTC amount of an individual is not taxed at the same rate but various components in the salary structure affect your taxability differently. This is the main reason why we are not paid an X amount as salary but the same is divided into the components. We have discussed the compensation structure in our Article - Understand your salary structure As discussed earlier, salary can be divided into 4 basic components and we shall discuss the taxability with respect to each component now

Running away from your tax queries is not the solution to reduce your taxes.

Reimbursements and allowance: You can reduce your taxes on the reimbursements and allowances by submitting proper bills and other required documents/forms withing the due dates provided by your employer.

Leave Travel Allowance (LTA) – Did you know that the annual leaves and holiday that you were taking would actually help you to reduce your taxes? LTA lets you do just that. LTA remunerates employees for their travel within the country. The amount of LTA would be mentioned in your salary structure. Where you submit appropriate and eligible bills of your travel to your employer, the amount shall be paid to you and will be considered tax-free. There are a few conditions/rules which are to be followed while claiming for your tax-free. We have mentioned the same in our article How to save taxes through LTA.

House Rent Allowance (HRA) – Your Company pays for your rent and when you submit appropriate rent receipts, no taxes are charged on the same. This benefit is available only to those employees who are staying on rent. Given that in metro cities, many of us are living on rent, it is a great benefit to save taxes. As always, there are certain rules based on which this becomes tax-free, we have mentioned the rules in our Article How to save taxes through HRA.

Standard deduction towards medical and conveyance: From April 2018, a standard deduction of INR 40,000 is available towards medical and conveyance expenses of the employees. You are not required to submit any bills to claim this benefit. INR 40,000 would be directly deducted from your gross salary to compute the taxable salary numbers. Ensure that the same is deducted when you receive your Form 16.

Food, telephone, internet and other reimbursements – Some employees have other reimbursement items such as food, telephone, internet, uniform, newspaper etc. which are reimbursable and no taxes will be deducted on these if you submit bills as required by your employer.

Contributions – Payments made by the employer on behalf of their employees towards EPF, NPS, insurance or gratuity for the retirement benefits or otherwise

Employee’s provident fund (EPF) - Contributions made by the employer and employee (which are deducted from the CTC) is tax-free. The same is not included as a part of your taxable salary. Please refer to our Article – Taxability of EPF to understand the same in detail.

National Pension Scheme (NPS) – Deductions made from your salary each month towards NPS and your employers’ contribution is tax-free. In fact, NPS provides additional tax benefits to the employees. We have discussed the same in detail in our Article – Taxability of NPS.

Gratuity – Gratuity is only received when on resignation (after completion of 5 years of service), death or retirement. A part of the gratuity amount received is exempt based on the formula specified under the Income-tax Act. We have discussed the same in detail in our Article – Taxability of Gratuity.

Insurance - Any premium paid by your employer towards your health insurance, life and others which is included in your CTC is tax-free and the same is not included in your total taxable salary.

Variable salary i.e. Bonus paid in any form is taxable. Bonus is added to your total taxable salary and taxed based on the slab rate you fall under after the receipt of the bonus. Fixed Salary Components: This includes the basic salary, special allowance, Dearness allowance etc. They are generally fully taxable.

Basic salary is generally is 40% - 50% of the CTC amount.
Dearness allowance is not paid by many private companies; it is generally paid by government companies.
Special allowances are the balancing number in your CTC. Whatever may be the amount, it is fully taxable.

Professional Tax - Professional tax is the tax levied by Governments of certain states on salaried employees. The states where professional tax is applicable are Karnataka, Bihar, West Bengal, Andhra Pradesh, Telangana, Maharashtra, Tamil Nadu, Gujarat, Assam, Chhattisgarh, Kerala, Meghalaya, Odisha, Tripura, Madhya Pradesh, and Sikkim. The amount of profession Tax that is deducted varies from state to state where they are applicable. You get a credit of the professional tax paid while computing your income-tax liability. From this article, you would have understood the simple ways (if applied) that can reduce the taxes without making any additional insurance or investments. These ways are inbuilt in your salary components and not many people know how to make most of it. Understand your salary structure and work on reducing your taxes. It is the first step towards a healthy financial life. In our salary series of articles, we have discussed the taxability of each component.

Salary / Tax - 01/07/2019

Leave Travel Allowance - LTA

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 LTA In 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 of travel 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.

Salary - 08/14/2018

Understand your salary structure

“The number of INR 50,000 per month that the company has offered to pay you is it the in-hand number or your CTC?” I could not help but ask my friend, Leesha this question (and ruin her excitement) when all she wanted me was to be happy for her new job at a leading fashion house in Mumbai. She obviously did not understand the term CTC. She told me that she was offered INR 50,000 per month and reckoned it was sufficient to live a decent life in Mumbai. What she didn't understand was that the amount of INR 50,000 was the CTC amount and the actual amount she would receive in hand each month would be lower. I asked her ‘Have you heard about the IIT students getting a package of INR 24,00,000 and more?' After she answered in affirmative, I further questioned her ‘How much do you think, that person would be getting each month in his/her bank account?’ My friend answered with a bit of jealousy that the amount would be INR 200,000. I told her that it is not so, the student would get anything between INR 100,000 to INR 135,000 as his/her in-hand salary. The amount of INR 24,00,000 is their CTC and various components get deducted before receiving the final salary. I explained to her that the industry generally discusses salary in terms of CTC and not in-hand (which are not the same thing). By looking at her face, I realized either she has assumed the worst or is absolutely clueless about anything that I just said. Then I started to explain to her exactly in detail what I meant. In-hand salary (also known as take-home salary) is the amount that you actually receive in your bank account at the end of each month whereas CTC (also known as Cost to company) is the total salary amount before any taxes, insurance amount, bonus and other various deductions. This amount is generally printed on the offer letter issued to an employee. Salary is always offered on per annum basis. It is generally never negotiated or discussed on a per month basis. My friend would be expecting an amount of INR 600,000 (50,000*12) annually in-hand but the amount is actually INR 600,000 CTC. In short, in-hand salary = CTC minus Deductions CTC is always a higher number than the in-hand salary number. The general deductions which are subtracted from the CTC amount to arrive at the final ' in-hand' or 'take-home' salary of an individual can include:

Telephone, car, and other allowance – Many employers reimburse their employees' telephone & internet bills, children's education and uniform allowance up to a specific limit. This amount is also included in the CTC as a part of your salary. However, this payment is not made at the end of each month but is made only when the bills (up to the limits specified in the offer letter) are submitted to the company. Thus, one can collect bills over 6 months and claim their reimbursements once in 6 months or not claim anything until the end of the year. Where an employee does not submit any bills throughout the year, the employer shall pay the amount due to an employee after deducting relevant taxes on the same at the end of the year. Where bills are submitted to the extent of the limits specified, no taxes are deducted by the employer while making these payments.
Leave Travel Allowance (LTA) - LTA is similar to the allowances mentioned above. The same is paid to you only after you submit the relevant bills and documents to your employer. There is a detailed article, written on How to save tax through LTA

Gratuity - Gratuity is payable to an employee on the termination of his /her employment after they have rendered continuous service for not less than 5 years. It is important to know that gratuity is payable only on resignation (after 5 years of service), retirement or death. Thus, even where the same is included in your CTC, it is not paid to you until you serve 5 years. If you leave the company before completion of 5 years of service, this amount is not paid to you even though it formed a part of your CTC.
NPS (Employer Contribution) - An employer may contribute a % of your basic salary towards NPS - National Pension Scheme. Any money from NPS is received only post-retirement. There are certain conditions for withdrawing money before retirement. We have discussed in detail about NPS in our articles What is NPS and How can you withdraw money from NPS. The NPS amount is a part of your CTC but not paid each month to you and instead deposited with PFRDA each month to be paid to you on your retirement.
Employees' Provident fund (EPF)– An employer contributes 12% of the basic salary payable to the employee towards EPF. Where an employee opts for EPF, the employee contributes 12% of his basic salary in addition to the Employers Contribution. A total of 24% of your Basic salary is deducted from your CTC resulting in a lowered in-hand amount. There are many things to know about EPF apart from the impact on the in-hand amount. We have discussed the same in detail in our series of Article under EPF
Taxes –All employers are required to deduct taxes on the salary that they pay to the employees. If you are under the belief that you are hardly earning anything and should not be paying any taxes, you are mistaken. If an employee is earning more than INR 2.5 lakhs per annum (this amount is the CTC amount), the employer shall deduct appropriate taxes on the same. Apart from EPF, the major impact on the in-hand salary is the taxes which are deducted by the employer. Refer to our Articles Ways to reduce taxes without any investments and Investments which help you reduce taxes.
Health Insurance or medical-claim – Many employers provide their employees with health insurance cover and the premium amount of the same is included in the salary CTC amount. However, that amount is not received in-hand each month by the employee but is directly paid by the employer to the respective health insurance providers.
Bonus - The Bonus component in one's Salary is completely dependent on the performance and targets achieved. The maximum bonus that an employee is eligible to receive is included in the CTC. However, it is received only once a year and depends on your performance which is assessed by your employer. Where your offer letter states a bonus of INE 300,000 you may receive anything less than INR 300,000 based on the targets achieved by you and after deducting the applicable taxes on the bonus.
House Rent Allowance (HRA)- The amount paid as rent when the employee is settled in a new city. This is received in hand each month until you are living in accommodation provided by the employer.

In conclusion, the deductions from the CTC can broadly consist of five parts:

Contributions: Amount that is contributed by the employer on behalf of the employee towards EPF, Insurance, a gratuity fund or a pension fund. It is a part of your salary but is received by you only after you have completed a few years of service and on the fulfillment of certain conditions.
Taxes: Income-tax - the same is deducted when your income is more than INR 250,000 subject to some investments and profession tax - this is deducted for all professional employees.
Employer Expenses: House Rent and Health Insurance - Expenses incurred by the employer for your benefits but not paid in-hand to you.
Reimbursements and allowances: Amount that you receive as reimbursements/allowances (without taxes) after the relevant expenses proofs are submitted. Where you do not submit the proofs, the same is paid to you at the end of the year after deducting taxes from the same.
Variable salary: Amount that you receive as performances based incentives, profit-based bonus or sales based targets (Bonus).

By the end of this discussion, Leesha was not very happy as now she realised that she will receive only INR 40,800 in-hand each month and not the INR 50,000 CTC she was offered by her employer. For a fresher, this can be an anxious phase as you do not want to be considered unaware by your new employer and yet know how much exactly you are going to earn. We, through are articles are educating you about your income as understanding and knowing your income is the first step towards financial wellbeing.

Salary - 08/08/2018

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