Importance of Travel Insurance post COVID

Not many people realize this but travel-related insurance is easily one of the most ignored aspects of international travel and with the entire COVID-19 scenario running roughshod on international travel, it will become all the more important. This kind of insurance has always been essential to cover travel-related risks like missed connecting flights, lost baggage, injury or illness abroad, loss of travel documents, loss or damages caused by weather-related problems, etc. With the evolving Corona Virus situation, however, things will continue to remain exceptionally unpredictable for the foreseeable future, leading to any factors which will lead to increased need and importance of insurance for travel purposes.

Factor 1: The lingering risk of Corona Virus infection:

There will be a few long months, maybe more than a year, before you can expect an effective vaccine for coronavirus infection. News shows that while some medicines have shown promising preliminary results in the treatment of Covid-19, a vaccine is always the best choice because it is a preventive measure and as the old adage goes, prevention is always better than a cure. International travel takes place in planes which are enclosed environments and people are too close for comfort in the planes. Did you know that even if you fly business class, you are still not far enough from other people in a plane for sensible social distancing to be possible? Imagine flying a coach in such a scenario! This means that travel insurance is going to be extremely necessary for everyone.

Factor 2: Airlines services will continue to be shaky

Airlines are trying very hard across the globe to keep their systems operational but the situation was so bad that they were not even able to find enough parking spaces for all the grounded planes. The fact of the matter is that airlines always run at paper-thin margins because of the highly competitive industry and extremely volatile cost structure. Once they are going to get things in the air once more, there will be a lot of turbulence. Many systems were working by duct tape and hammer blows and getting back these systems to operational level in an understaffed and risk-bearing situation will mean many people will miss connections, luggage will get lost many times and all such risks will be very high, creating a strong need for everyone to buy travel insurance online before they fly to anywhere out of the country.

Factor 3: You might get stuck out of India during lock-down

Let there be an assumption that you were able to travel to any country out of India and you landed there all safe and sound, but just before you were supposed to travel back, your host area encountered a sudden rise in infections, making it necessary for the government of that area to suspend all travel activities in and out. In such a situation, you will be stuck in your host country until the government of India can arrange for your return. Travel insurance will be your only help in such a case. It will cover all the extra expenses which you will have to bear during the lockdown.

All things said and done, in the coming few months, international travel will change like never before.

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

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