Money Plants

Sunday, January 29, 2006

All you needed to know about LTA but didn't know whom to ask

LTA is an allowance that your employer may pay you as reimbursement towards any travel expenses within India that you may incur while on leave. That means, you must satisfy 2 basic conditions: you must take leave and you must travel within India. You can claim expenses incurred if you travel with your family but cannot claim expenses incurred if your family travels without you. When I say 'claim' expenses, it means show bills as proof. If you don't show bills, you will still get your LTA amount but minus the tax.

While this allowance is paid to the employee every year, it is treated as tax-free only for two journeys in a block of four years. The 'block of four years' is defined by the income tax laws. They are 1998-2001, 2002-2005, 2006-2009 and so on. These are calendar years.

It is very clear that only 2 journeys are tax free. Whether you undertake those 2 journeys in one year or spread it across 4 years is up to you.

Let's take an example. Suppose you get an LTA of Rs 10,000 per annum and let us also assume that you are in the block of 4 years between 2006 to 2009. Here are some circumstances.
1) You make 2 journeys in 2007 and spend Rs 7,000 and Rs 5,000 on each respectively
In 2006, you pay tax on Rs 10,000.
In 2007, you will get reimbursed up to Rs 10,000 (although your total expenses of both journeys are Rs 12,000, your salary package has a limit of Rs 10,000). This Rs 10,000 will be tax free.
Since you have exhausted both your journeys in 2007 itself, you will be taxed on LTA every year thereafter, untill 2009.

2) You make 2 journeys in 2006 and spend Rs 3,000 and Rs 6,000 on each respectively
In 2006, you will get reimbursed up to Rs 9,000. This Rs 9,000 will be tax free.You will be taxed on the balance Rs 1,000.
Since you have exhausted both your journeys in 2006 itself, you will be taxed on LTA every year thereafter, untill 2009.

3) You make one journey in 2007 and spend Rs 7,000 on it. You don't make any more journeys till 2009
In 2006, you will get taxed on Rs 10,000.
In 2007, you will get reimbursed up to Rs 7,000. This Rs 7,000 will be tax free.You will be taxed on Rs 3,000.
Since you do not make anymore journeys till 2009, you will be taxed on LTA every year thereafter, untill 2009.

4) You make one journey in 2006 of Rs 8,000, one in 2007 of Rs 10,000 and one in 2009 of Rs 15,000.
In 2006, you will get reimbursed up to Rs 8,000. This Rs 8,000 will be tax free.You will be taxed on Rs 2,000.
In 2007, you will get reimbursed up to Rs 10,000. This Rs 10,000 will be tax free.
In 2008, you will be taxed on Rs 10,000 since you have not made any journeys.
In 2009, you will be taxed on Rs 10,000 since you have already exhausted your 2 journeys in 2006 and 2007.

5) You don't make any journeys between 2006 to 2009
You will pay tax on Rs 10,000 every year for the 4 years.
But there is one benefit that is given to you. You can carry forward the benefit of one journey to the next block of 4 years, which is 2007-2010. However, you must make that journey in 2007.
That means, suppose you make one journey each of Rs 10,000 in 2007,2008,2009 and 2010, your taxation will be as follows:In 2007, you will be reimbursed Rs 10,000 which will be tax freeIn 2008, you will be reimbursed Rs 10,000 which will be tax freeIn 2009, you will be reimbursed Rs 10,000 which will be tax freeIn 2010, you will be taxed on Rs 10,000

If you make 3 journeys in 2007 and spend Rs 20,000 in total, you will get tax free reimbursement of only Rs 10,000 and at the same time, you will have to pay tax in the next 3 years.

Some tips:
  • Even if you make 2 journeys in one year, make a claim only if it is beneficial otherwise spread the benefit over 2 years.
  • If your spouse and you both get LTA, use it efficiently so that you both together can claim 4 journeys in a block of 4 years.
  • Since the interpretation of LTA rules is a bit complicated, some companies device their own policy regarding LTA. Please check rules with your company.

Coming up...
What is eligible for LTA?

34 Comments:

  • I hate this LTA concept. IT dept has to modify the rules for this.

    By Blogger REFLEX, at 2:44 AM  

  • Awesome post. Thank You :)

    By Anonymous Sai Prasad, at 8:59 PM  

  • Hi MoneyPlants

    There's one thing i don't get here. How are the blocks defined? is it fixed as ..1998-2001, 2002-2005, 2006-2009... as you said earlier,

    But then later, when you talked about the rollover, that the next block is 2007-2010.

    So, is the block defined from the first travel claimed [doesn't look like it], or is it that in each and every block of 4 years there can be only 2 journeys?

    Could you please explain in a bit more detail? 10x.

    By Anonymous tax_victim, at 3:08 AM  

  • Hey tax_victim,
    I am sooooo sorry....that was a mistake on my part... I will change it right away.

    The slabs are fixed by the income tax department. So while the current slab is 2006-2009, the next is 2010-2013.

    Hope this clears the rest of the doubts.

    By Blogger Money Gardener, at 11:13 PM  

  • Thanks a million, MoneyGardener :)

    keep the amazing info coming !! amazing stuff !

    By Anonymous tax_victim, at 7:26 PM  

  • Hi MoneyPlants,

    It's great information.

    I need one clarification.

    Travel expenses means only to/from a destination.

    I travelled like this with my family.

    Hyd-Delhi-Hyd by Air

    And from Delhi, taken car on rent to have complete trip Delhi-Shima-Manali and then back to Delhi. Then after to Hyd by air.

    My org is accepting only AIR fare and not accepting car rental. They say only SINGLE destination.

    Could you please clarify and provide any proof.

    Thank you,

    Ashok.

    By Anonymous Anonymous, at 4:46 AM  

  • Hello Ashok,
    While there is ambiguity on this issue, it does appear from the reading of the law that only one destination would be allowed.

    I suggest you cosult a professional tax consultant in your city.

    Sorry about not being of much help.

    Rgds,
    MG.

    By Blogger Money Gardener, at 9:15 PM  

  • Hi MoneyPlant,

    I have one question here. If I claim LTA only once in the 4-year cycle 2002-2005, can I carry over the other claim to the next block ie. 2006-2009? In other words, can I claim thrice in the current block, having made only 1 claim in the previous block?

    Regards,
    Ritambhar

    By Anonymous Anonymous, at 1:52 AM  

  • Hi Ritambhar
    You can carry forward the benefit of only ONE journey to the next block. So if you have claimed only once in the 2002-2005 block, you can claim thrice in the next block of 2006-2009. That is, 2 joruneys actually allowed in the block 2006-2009 and one journey carried forward from the earlier block. Also, you must make the carry forward journey in 2006 itself and not beyond.

    Rgds,
    MG.

    By Blogger Money Gardener, at 9:13 PM  

  • Hi MG,

    Thanks a lot for the info. This makes things pretty clear for me.

    Regards,
    Ritambhar

    By Anonymous Anonymous, at 9:51 PM  

  • Hi Sir,
    I have a query regarding LTA.
    I had travelled last January (Jan 2005) and I did not claim tax excemption in Mar 2005 as I thought that then I could claim only from Jan 2004-Dec 2004.

    So in Mar 2006, I tried claiming tax excemption for the Jan 2005 visit. However I was denied and told that I cannot claim for a Jan 2005 travel in Mar 2006. Is this correct?

    Thanks and Regards,
    Subu

    By Anonymous Subu, at 10:48 AM  

  • Hello,

    I had proceeded on leave along with my mother and my daughter on 22nd Dec 2006, while I retured on 2nd Jan 2007, they stayed back and returned on 13th Feb 2007. Can I claim LTA for all the three of us?

    By Blogger Keshav Modi, at 7:36 AM  

  • Cool blog, interesting information... Keep it UP »

    By Anonymous Anonymous, at 10:40 AM  

  • Who are eligle for LTA claim . Is it only my parents,Spouce & children ?
    Can I claim for my --
    1. Dependable brother/sister?
    2. Inlaws?

    By Anonymous Anonymous, at 5:04 AM  

  • very useful info!
    but please make it clear about which vacations are considered valid. also I heard there is some minimum no. of days that we have to take off from office. also is the travel on weekends or office holidays considered for LTA claim?

    By Blogger Anish, at 5:25 AM  

  • Leave Travel Assistance (LTA) has got a tax treatment which is quite different from all the other type of allowances and perquisites that you get. And that's the primary reason it is the one that gets people confused more often than not.The following points need to be kept in mind while taking the LTA or producing bills for it:
    What's covered?
    Only the travel costs, not the eating and partying or hotel bills.
    So, whether you fly, hop on to a train or take public transport, you can show the ticket and claim your LTA.
    What if you want to travel by a car? If a car is owned by a central government organization like ITDC, the state government or the local body, LTA is permitted.
    If you could not get public transport and resorted to private transport, try and get a bill. If the bill is not accepted by your employer, you can always file an income tax return, claim an exemption and get a refund.

    How often can you claim it?
    Twice in a block of four calendar years .
    Bear in mind you can claim two journeys in a block of four years, its not two times in four years but two journeys in four years.But you can make a trip only once in year. You cannot claim both the journeys in one year.
    In case you were unaware, LTA is not related to when you started your employment. The government fixes blocks of years.
    These blocks are not financial years (April 1 to March 31); they are calendar years (January 1 to December 31).
    The current block is 2006-09: January 2006 to December 2009.
    The earlier one was from 2002-05: January 2002 to December 2005.
    During this time period, a person is entitled to two LTA claims.

    No time for a holiday?
    Then you can carry it forward.
    One LTA can be brought forward and claimed in the first year of next block. ( This is what is meant by 'Carry Forward'.)
    Let's say you do not take your LTA in 2002-05. Or that you use only one LTA. This means you will be able to take the pending LTA in 2006. This means that, in the 2006-09 block, you will be totally entitled to the three journeys.
    And if you switch jobs? You can get the LTA not only from present organization but also from the former employer, if the concession is lying unutilized.
    Let's say that, in the 2002-05 block, you claimed LTA in 2003. In 2004 you switched jobs. You can still claim your second journey with your new employer. Of course, your new employer will ask to look at your earlier tax returns to see whether it has been claimed or not.

    Who's covered?

    Your family. This term is quite wide; it includes you, your parents, siblings dependent on you, spouse and children.
    For children born after October 1, 1998, the exemption is restricted to only two surviving children (unless, of course, one birth has resulted in multiple children like twins and triplets).
    Well, what if your spouse is also employed? It does not matter; your spouse too is covered.

    What if you don't take it?
    If LTA is not utilized, it gets added to the entire salary. And then you are taxed on it.
    Let's say you and spouse are both employed and both have LTA as part of the salary package. Your LTA is Rs 20,000 and hers is Rs 20,000 too.
    Both of you and your child go for a holiday. The tickets for the three of you amount to Rs 15,000. You supply the tickets to your office and this amount will be eligible for a tax deduction, the balance Rs 5,000 will be taxed. You can claim exemption only to the tune of your expenditure.
    Now, if you claim this, your wife will not be able to claim this same holiday from her employer. Her Rs 20,000 will be taxed. Unless another holiday is made and she claims it.
    Or, let's say that you spend Rs 30,000 on tickets but your LTA is just Rs 20,000. You can claim up to Rs 20,000 and tell your wife to claim her ticket from her employer.
    So go and catch that plane or hop onto a train. Not only is a holiday good for health but can also be a tax haven.

    Quick tips (Important)
    i. You can get LTA only if you have applied for leave from your company and have actually travelled.
    ii. If your family travels without you, no LTA can be claimed. You have to make the trip, either by yourself. If claiming for family, you should travel with them.
    iii. You will need to keep your air, rail or public transport ticket. Or, if you rented a car, give the bill issued by the car rental company.
    iv. International travel is not valid. It must be within the country.
    v. Though you can claim two journeys in a block of four years, you can claim the LTA benefit just once in a year. You cannot claim both the journeys in one year. So, if you make two trips in a year, you lose one. A way out is to claim one and make your spouse claim the other.

    By Anonymous Anonymous, at 1:28 AM  

  • Hi,

    I have a query regarding LTA. I went to a place in india by air. Now, along with airtickets i also spent amount on taxi to and fro airport. Can i claim these taxi bills along with the airtickets in my LTA claim? Please clarify. Thanks.

    By Blogger shikha, at 10:26 PM  

  • Hi,

    I need somebody to get a doubt of mine cleared regarding LTA. If I travel from Pune to Delhi & then back from Delhi to Pune during one of my vacation, will this be considered one journey or two journeys?

    Thanks
    Ahmad

    By Anonymous Anonymous, at 12:02 AM  

  • Hi,
    I am planning to claim LTA this year for my travel to my home town 'DELHI'. My family plans to travel by train and I by Air. Do you foresee any issue with this while claiming my consessions for LTA?

    By Blogger Tanay, at 3:25 AM  

  • Hi,
    Also do the travel dates need to be same for me and my family?

    Thanks

    By Blogger Tanay, at 3:27 AM  

  • Hi,
    I am in big mess..
    actually my wife is working in govt. sector and i am in private.
    too avial the benefits of govt. LTA i need the NOC from my company but they are not ready to give me such letter.
    How can i avail the benefits my wife getting from govt for LTA?

    By Blogger Vivek, at 2:02 AM  

  • Hi,

    I have one confusion about LTA claim. I had traveled in June 2007 and didn't claim for LTA. I have switched company in June 2008. Now can I claim LTA for June 2007 in current financial year (2008-2009).

    And also, can I claim another LTA for 2009 traveling(in future) during (2009-2010) financial year. As far as I know that current LTA block is 2006-2009.
    Please suggest me .
    Thanks

    By Anonymous Rahul, at 9:04 PM  

  • Hi,

    I had joined a company in August and have resigned in January. I was on probation for the period I served the company. Would I be eligible for LTA. The rule here is that you need to complete 11 months for being eligible for LTA. I am confused.

    AT

    By Blogger Aby, at 3:43 AM  

  • Hi

    I had one unique issue. I work in Pune, my home town is Chennai. I went to chennai and form there I travelled with my parents to Delhi. I submitted a claim for travel from Chennai to Delhi, but my company says that you can claim LTA for travels only from Pune and they rejected my claim. Is there any rule like this?

    Yogesh

    By Blogger yogesh sisodia, at 7:38 AM  

  • Hi,

    As far as I know one can claim LTA twice in a block of 4 years. Suppose somebody has got tax benefit using LTA for the year of 2008-2009 by submitting the bills of the travel he made during October 2008 in the month of March 2009; if in October 2009 again he makes a trip when should he submit the bills such that it can give him the tax benefit for the financial year of 2009-2010 (the claim made in March 2009 was the first claim for the block of Jan2006-Dec2009).

    Precisely since at Dec2009 the current block is ending when should he submit the bills? Please let me know.

    By Blogger Subhasis, at 3:52 AM  

  • I heard there is some minimum no. of days that we have to take off from office. also is the travel on weekends or office holidays considered for LTA claim?
    1) what is the minimum no.of days the we have to take off from the office?

    By Blogger vijayabaskar, at 5:00 AM  

  • For 2005-2009

    I have travelled 1dt on 2006
    and 2nd on 2009

    But , I have submitted my bills on Apr 2010 which i travelled on Nov 2009.

    Will it be tax exemption for 2009 or 2010 ?

    By Blogger Vishal, at 3:36 AM  

  • Hi,
    I have not claimed LTA in last block eventhough I had travelled in 2007 & 2009. Can I claim both travel as non-taxable in 2010?

    By Blogger Aju, at 3:00 AM  

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