Holidays are never planned solely to take advantage of the tax benefits on offer, but a clear understanding of leave travel allowance (LTA) rules can help you lower your expense burden.
For many, the Christmas-New Year season not only provides an opportunity to soak in the festive cheer, but also to exhaust the balance leaves that would otherwise lapse.
It can also bring down your tax outgo if you know how to make the most of the tax benefits on leave travel allowance, or LTA.
Plan well to maximize LTA benefits
While vacationers spend hours or even months planning a holiday, they rarely take into account LTA at that point in time. Only when it's time to claim the benefit they scramble for documentary proofs like original boarding pass or flight and rail tickets.
LTA is an allowance granted by organisations to their employees as part of their remuneration structure. You should have officially applied for leave in order to avail this exemption. This LTA for expenses incurred on travel during a year can be claimed as an exemption, provided it meets rules laid down by the Income Tax laws. If you do not travel or utilise the tax relief, the entire allowance paid will be considered part of your taxable income and subject to tax at the slab rate applicable to you.
First, the benefits. The tax laws do not impose any limits on the amount you can claim as LTA exemption. All you need to do is to factor in LTA at the time of booking your flight or rail tickets and ensure that you retain bills of your road travel expenses incurred during the journey. You need to be aware of the restrictions. The amount of LTA that you can claim as an exemption is restricted to the amount that you get as LTA in your salary.
Tax breaks on LTA have not been revised in years despite the clamour for updating the rules considering the changed lifestyles and higher expenses in current times. You can avail of LTA only twice in a pre-defined block of four calendar years. For example, the ongoing block started in January 2014 and will draw to a close in December 2017. If you fail to make a claim in the previous blocks, one journey can be carried forward to the subsequent block. However, even this leeway will lapse if you do not make use of it in the first year of the new block.
Keep an eye on the rules
Theoretically, you can claim tax relief on the entire LTA amount sanctioned by your employer.
However, it is not as simple as it seems. For one, your overseas holiday will not fetch you this tax benefit. Secondly, irrespective of the LTA you see on your salary package and the amount you spend on tickets during the journey, your exemption will be limited to an amount equal to AC first class train fare or economy class flight fare charged by the national carrier for the shortest route to the destination.
That is, even if you decide to travel using services of other airlines and the fares happen to be much higher, your entire spends will not be eligible for the exemption. Air-conditioned first class train fare for the shortest route to your destination will also be the yardstick of determining LTA exemption even if you are undertaking a road journey in a private vehicle. In areas where public transport is available, that will be the benchmark. Expenses incurred on food, hotel accommodation and personal expenses will not be eligible for LTA claims.
You can include your family members' expenses while filing an LTA claim. However, the definition of family for the purpose of computing LTA exemption includes spouse, parents and up to two children. Siblings too can be part of this bracket, provided they are dependent on you.
(Vaibhav Sankla is a director at H&R Block India)
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