Leave Travel Allowance Exemption: Rules and Regulations

What is Leave Travel Allowance?

LTA is the remuneration that you get from the employer when you are on leave with the family or alone. It is the most common form of tax exemption given to employees by most employers. It is not allowed for overseas destinations. Leave Travel Concession includes the cost of travel only; it doesn't include the cost of accommodation & other costs. You can claim LTC on the basis of expenses actually incurred by you on traveling to any place in India, either on holiday or on leaving the job and going to any other place either to take up another job or otherwise. Travel cost of family members can also be claimed under LTC. For this purpose, family includes your two children, your wife, whether dependent or not, your siblings, and parents who are mainly dependent on you.

What are the Conditions for Claiming Leave Travel Allowance Exemption?

You must fulfill the below-mentioned conditions for claiming Leave Travel Allowance -

• You must have undertaken the actual journey to claim the exemption.
• The exemption applies only to domestic travel within India; international travel is not covered under LTA/LTC.
• The exemption is applicable to the employee alone or with their family, including their spouse, children, and dependent parents, or siblings.
• The exemption is limited to a maximum of two children born after October 1, 1998. There are no restrictions for children born before this date, and the restriction does not apply in cases of multiple births after having one child.

Taxability of Leave Travel Allowance

The maximum LTA exemption that can be claimed depends on the actual cost incurred on transportation and the LTA amount allowed by the employer. The LTA exemption is allowed for the cost of the shortest journey (either by bus, train or air) employee's place of residence to the travel destination and back. If the LTA offered by the employer is less than the actual cost incurred on transportation, the exemption would be limited to the LTA allowed by the employer and not the actual costs incurred.

Different employers give different amounts as leave travel allowance depending upon the position at which the employee is working. LTA exemption comes under section 10(5) of the Income Tax Act. The amount of LTA received is taxed as:

You can get the exemption only for the amount you are eligible for and not for the actual amount spent on your travelling. For Example, if your LTA amount is INR 25,000/-, but you have spent INR 30,000/-, you’ll get an exemption only for INR 25,000/-. And if you have spent INR 15,000/-, you’ll get an exemption of INR 15,000/- only, and on the remaining INR 10,000/- you’ll have to pay tax.

Rules to claim LTA exemption under old tax regime

Soni explains the conditions that a taxpayer must meet to claim LTA exemption under the old tax regime.

• LTA part of salary: An employee must be receiving LTA as part of his/her salary from his/her employer.
• Submission of travel bills: Employees must submit the bills and other travel documents to their employer before the date specified by the employer for doing so, to claim tax exemption in a particular financial year.
• No international vacation: The LTA exemption is available for travel within India and cannot be claimed for international travel.
• Cost of travelling for specific family members: The LTA tax exemption can also be claimed for cost of travel of accompanying family members. For this purpose, family members can include spouse, children, dependent parents, and dependent siblings.
• Covers only mode of travel: LTA exemption rules cover only cost incurred for actual transportation for travel, including by air, train, or road. LTA exemption is not allowed for cost of hotel bookings and food expenses during the trip.

Is LTA taxable under the new tax regime?

The tax exemption on LTA is not available under the new tax regime. Hence, if you have received LTA as a part of Cost-to-Company (CTC) and opt for the new tax regime for TDS on salary for FY 2025-26, then LTA will be taxable even if you submit bills of travel.

Exemption of LTA on Multi-Destination Journey and Various Modes of Transport

Income tax provision offers exemption for travel expenses incurred while on leave to travel across India. But the exemption is also subject to conditions regarding the mode of transport and specifies that the journey must be from the place of origin to the place of destination using the shortest possible route.

Therefore, if an employee travels to multiple locations during a single vacation, the exemption is limited to the eligible travel expenses for the journey from the origin to the farthest place visited, calculated using the shortest available route.

What is block year in LTA?

You can claim an exemption for upto two journeys in a block of four calendar years. The current block extends from January 1, 2022, to December 31, 2025. A taxpayer can claim LTA exemption on a maximum of two journeys in this block.

For Example, if you travelled during the month of January 2022, it will fall in this block, since it is applicable on calendar year.

If you don’t travel within a block, you can carry forward the leave travel balance to the next block.

What if Both Husband and Wife are Eligible for LTA?

If both spouses are eligible for LTA, then both of them can claim LTA individually. But they can’t claim LTA for the same journey. They can claim the exemption for separate journeys or divide the expenses.

Other Relevant points:

• If LTC is encashed without performing journey, no LTC exemption shall be allowed and entire amount received by employer would be taxable.
• Family for this purpose means the spouse and 2 children. It also includes parents, brothers and sisters of the employee who are wholly or mainly dependant on him.
• The exemption can be taken for the journey undertaken while on leave during the tenure of service or even after retirement/termination of service.
• LTA exemption is only available in respect of fare.

So plan your holidays; enjoy the trip. Come back, claim the LTC & save taxes.

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