Taxability of Leave Travel Assistance under Section 10 (5) of Income Tax Act

One of my student, we lovingly calls him Mr. Doubtful, has always doubts even in simple provisions. The main reason was that he was in too hurry to read and understand the whole provision.

While learning the Taxability of Leave Travel Assistance in the Income from Salary chapter he asked very wonderful questions!!!

1)      Sir, whether a business man goes to any place in India or out of India for vacation then can he claim Exemption/Deduction of LTA???

==> Is the Business man an employee of any other organization? Does he receive Salary Income from his employer? Does LTA is part of his Salary? If the answers to these questions are NO then the business man can’t claim exemption of LTA. For claiming LTA exemption, the assesse must receive it from his employer, in advance or gets reimbursed the expenses.

2)      Sir, what if an employee goes on LTA to any place in India by Air in Premium Class?

==>The amount of exemption which can be claimed in this case will be restricted to Travel Charges on the Shortest Route collected by National Airways by ECONOMY Class; excess amount spent by travelling in Premium Class over and above Economy Class will not be allowed as exemption. The Mode of Travel, Class of Travel and Amount Exempt is as below
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==> Exemption of LTA can be claimed by an employee for travel to any place in India only. But travel outside India is not available for exemption.

4)      Sir, whether the exemption is available to the Employee only or to his father, mother, brother, sister, spouse, son, daughter, in-laws etc.? If the full family stays in 5 Star Hotel then how much amount is exempt?

==> The Exemption is available for expenditure incurred towards Travel Fare only for the employee himself and his family. Under this section Family means – (1) Spouse and Children of the Individual and (2) Parents, Brothers and Sisters of the individual or any of them, wholly or mainly dependent on the Individual. In case of Children of the individual the exemption shall not be available to more than two surviving children. This rule will not apply in respect of children born before 1.10.1998 and also in case of multiple births after one child.

5)      Sir, can you explain the case of multiple births a little more?

==> Suppose Ram is an employee. He has elder daughter Radha. In second delivery his wife gave birth to 2 or more children. Then in this case exemption is allowed for all children. Take otherwise case, Suppose Laxman is an employee. His wife gave birth to 2 or more children in her first delivery. In his case the exemption will be limited to the number of children born in the First Delivery only. No exemption will be allowed in case of Laxman for child/children born in subsequent delivery.

6)      Mr. Doubtful, may I request you to read the provisions of Taxability of Leave Travel Concession first and ask your queries thereafter? In brief the whole provision of Taxability of Leave Travel Concession explained as below –

==>  LTA received by or due to an employee from his employer for the employee himself and his family in connection with his proceeding on leave or on retirement or termination of service to any place in India is exempt, subject to conditions laid down by CBDT.

==> Family Means –Spouse & Children of the Individual and Parents, Brothers and Sisters of the Individual or any of them, wholly or mainly dependent on the Individual.

•  Conditions for LTA Benefit :

a)  An Individual can avail the benefit of LTA offered by his Employer, Twice in a Block of Four Calendar Years. (Current Block 2014-2017)
b)  In case, such travel concession in not availed of by the individual during any such block of four calendar years, he can avail concession in first year of next  block.
c)  The exemption is available in respect of Fare only. (Boarding or Lodging charges are not exempt)
d)  The exemption is available only for two children of an individual born after 1.10.1998. There is no restriction for children born before 1.10.1998. Also this    rule will not apply in respect of children born in case of multiple births after one child.
e)  Amount of exemption cannot be more than expenditure incurred on travel.

•  Exempt Amount:

a) Any sum received in Excess of the above exempt amount (Fare by shortest route) is taxable under the head “Salaries”.
b) LTA/LTC encashed without performing journey is fully taxable.
c) Expenses reimbursed other than the Fare (like lodging or boarding or any other) is fully taxable.