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

FBP- Flexible Benefit Plan of your Salary Structure

FBP (Flexible Benefit Plan) is widely used as a tax saving tool by many companies. It allows employees to structure CTC components while offering employee benefits such as Conveyance and Medical Expenses. In other words, there is a basket of allowances from which the employee chooses the component he wants for financial wellbeing.

For many years now, organizations, whether big or small, have tinkered with the idea of flexible benefit plans.
A flexible benefits plan (FBP) allows your employees to have more control over their salary and benefits package. They can restructure components accordingly. Let’s see how this is achieved.
Flexible Benefits Plan Components in India

These components are broadly divided into two subcategories
The monthly component which is paid by the HR department on a monthly basis. These components include HRA, vehicle lease, etc.
The annual component is paid to the employee on a yearly basis, only when the employee claims it. For instance, fuel, telephone, book reimbursements etc.

Let’s discuss few in details
✅Telephone Reimbursements
INR 30,000 per annum
Telephone/Internet expenses that you incur for the purpose of your employment can be submitted to your employer and a tax-free reimbursement of the same can be claimed.

✅Newspaper & periodicals
INR 30,000 per annum
Employees can claim reimbursement of expenses incurred on books, newspaper subscriptions, journals & so on.

✅Research allowance
INR 36,000 per annum
Allowance given to encourage research, training and other professional pursuits and employees can claim a tax exemption.

✅Leave travel allowance
Allowance given to the employee by employers for travel. The exemption is available only on the actual travel costs i.e., the air, rail or bus fare incurred by the employee. No expenses such as local conveyance, sightseeing, hotel accommodation, food, etc are eligible for this exemption. Availing LTA tax exemption is subject to certain terms and conditions.

✅Car maintenance allowance
It is commonly seen that the employer provides a car to ensure an easy commute for such employees. Irrespective the car is owned by an employee or employer, if the car is used only for business in the performance of office duties, then it will not be taxable. It's tax efficient to get a company owned car to claim full reimbursement for fuel, maintenance and driver’s salary. But, one should keep in mind, when the employer provides the car taxable perquisite, it is only limited to the specified limits.

How do flexible benefit plans help your employees?

If you are considering offering your employees flexible benefits, communicating the advantages of the plan is crucial. From the employees’ perspective, flexible benefits is a portion of the salary that can be received against different expenses to primarily save on income tax.
For example – Conveyance and Medical expenses are non-taxable components of CTC structures. Thus tax exemption can be availed against the productions of relevant receipts.

Way of Saving Tax

While implementing a flexible benefit plan requires that the employer implement an additional payroll deduction to cover costs of these benefits programs. This deduction is taken out of employees’ income before tax is calculated. This means that employees will actually save tax and have a larger take home salary.
How could employees avail Tax Exemption for the Flexible benefit components?
You can reduce your taxable salary and avail of tax exemption by declaring expenses and producing receipts under the Flexible Benefits head such as House Rents.
What happens when an Employee does not claim the Flexible Benefit component?
The amount that is unclaimed by the employee is denoted as Unclaimed. Income Tax would be calculated as applicable.

When does this amount get paid to the employee?

Some employers pay the Flexible Benefit Plan amount upfront and ask for receipts of the same at the financial year end. On not submitting the receipt, Income tax is deducted.
On the other hand, employers can deduct the Benefit amount from your monthly salary and it is reimbursed to you after you submit the receipts at the financial year end.

Conclusion

Every employee is unique, and so are their needs.Flexible Benefit Plan enables the admin as well as the employee to exercise a better experience of dispatching and structuring salaries. With a good FBP, both the parties are entitled to easy functioning and hassle-free customization.

Income Tax - 06/08/2021

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

GET STARTED

Attend a Workshop

Quick Financial Review

Schedule a workshop at your office

ABOUT US

About Us

Join Us

WCafe Financial Services Pvt Ltd (formerly known as Wealth Cafe Financial Services Pvt Ltd) is a AMFI registered ARN holder with ARN-78274.

WCafe Financial Services Pvt Ltd (formerly known as Wealth Cafe Financial Services Pvt Ltd) is a SEBI registered Authorised Person (sub broker) of Sharekhan Limited with NSE Regn AP2069583763 and BSE Regn AP01074801170742.

Terms & Conditions | Privacy Policy