The whole objective of travel is not to set foot on foreign land; it is at last to set the foot on one's own country as a foreign land. - G.K. Chesterton
The above quote sums up the importance and enjoyment of exploring your own country as a foreign land. The Government of India also wants to give impetus to inland tourism. Accordingly has provided for tax benefits in the form of Leave Travel Assistance (LTA) received from your employers. Let us understand what are the provisions of LTA under Income Tax Laws.
The Section 10(5) of Income Tax Act treats the amount of LTA received from your employer, be it present or past as exempt subject to fulfillment of certain conditions. To begin with, this tax benefit is available only to persons who are in employment and are in receipt of LTA from their employers. It is not available to the tax payers who are self-employed.
The exemption in respect of LTA can be claimed under two circumstances. Firstly when you are continuing in your present employment and proceed on leave to any place in India. The other situation when LTA exemption can be claimed is when you travel to any place after your retirement or termination from the service. This benefit on retirement can be claimed every time you leave one employment and move on to other location. So the retirement for this purpose not only includes the mandatory retirement on reaching the age of superannuation but also includes leaving one employment to take up another employment at a different location.
For whom you can spend the money:
You can either travel alone or with your family. However, if your family travels without you, no LTA benefit can be claimed. Moreover you need to be on leave on the days of travel. You cannot claim the benefits of LTA in respect of your spouse or child if you take them along with you on your business trip as you are not on leave on those days but going for official visit. Family for the purpose of claiming LTA exemption includes spouse, children, your parents and siblings. However in respect of your closer family i.e. wife and children, financial dependence is not required but for claiming the LTA benefits in respect of your extended family i.e. parents and siblings they should be financially dependent on you. Moreover the income tax law provides that you can claim this LTA exemption benefit in respect of two children only.
How frequently you can claim this exemption:
You can claim the LTA exemption twice in the block of four calendar years. This block is not calculated with reference to commencement of your employment but is predefined by the law. The current block has begun from 1st January 2010 and will end on 31st December, 2013.The next block will be from 2014 to 2017, and so on. It is not necessary that you claim the LTA exemption in alternate years, what is required is that you can not claim it more than two times in the defined block of four years. In case you and your spouse both are working, your family can travel every year and claim the tax benefit of LTA every year for two different calendar years in case of both of you. Since you can claim the LTA on expenses actually incurred, both of you can not claim LTA exemption in respect of the same expenditure incurred.
Carry forward of LTA / LTC Benefits:
Like benefits of carrying forward certain losses in your income tax returns, the law also lets you carry forward LTA not claimed in a particular block. So what happens if you could not fully claim LTA exemption for some reason during any block of four years..? It can be carried forward to the first year of the next block of 4 years. Thus, in respect of the current block of 2010 to 2013, you can carry forward and claim the benefits of your arrear of LTA during the calendar year 2014 without affecting your right to claim two LTA exemptions in the block of four years 2014-2017..
What is the amount you can claim as exemption:
The tax benefit is available only in respect of cost of transportation incurred by you on traveling within India. It is not available for expenses of stay in hotel or for local conveyance for sight seeing etc. In case you are going on a foreign trip, you can claim the expense of travel from your place to the point of departure from India for undertaking the foreign travel and back since the law allows you only the exemption in respect of expenses in respect of journey undertaken in India.. The exemption is restricted to actual expenses incurred by you in undertaking the journey from the starting point to farthest destination. There are restrictions upto which you can claim your LTA exemption and is dependent on the mode of transport chosen by you. The restriction based on the mode of transport is as under:
Mode of transport
Maximum Limit on Expenses
Economy fare being charged by the national carrier to the destination taking the journey by shortest route.
Amount not exceeding air conditioned first class fare by the shortest route.
If the destination is not connected by air or rail, you can claim the exemption maximum up to amount charged by any recognized public transport operator for 1st class or deluxe class fare operating on that route.
The exemption is available for the farthest place by shortest route when a circular journey is undertaken.
Documents to be preserved:
You need to preserve the tickets to claim this income tax benefit. If you hire a car, the receipt/invoice from the travel agency or car rental agency is considered valid proof. After the recent Supreme Court decision in L & T Limited, your employer may not verify and collect the proof of the expenses in respect of LTA still you are under an obligation to preserve and produce it before the assessing office at the time of your income tax assessment.
Since we are entering the holiday season once again, and calendar year is also coming to an end, you can plan your holidays keeping in view the above beneficial provisions of the LTA exemption.