Going on vacation? Know the finer points of Leave Travel Allowance tax benefit

Revenge tourism is on a roll as people look for spending some quality time with their family away from the hustle and bustle of city life. After the lifting of the lockdown restrictions, travel seems to have taken the center stage for most people now. But, going on vacation costs money. The good news is that if you are a salaried individual, a portion of your traveling expenses may come with tax benefits.

As a part of your cost-to-company (CTC) package, there is an allowance called Leave Travel Allowance (LTA) that is paid by your employer each year. When it comes to taxation, whether LTA will be taxed is something that is important to know.

LTA amount is exempted only for two years in a block of four years. The LTA block years are defined by the income tax rules. Currently, the LTA block years are the calendar years 2022-2025. The previous block was calendar years 2018-2021. One can opt for any two years to claim exemption and receive tax-free LTA from the employer. For the other two years, the LTA amount will be compulsory taxable and added to one’s income.

But wait! If you haven’t availed of LTA exemption in any block, you are allowed to carry one exemption over to the next block. So, effectively you can get an exemption for 3 years in the next block. However, such an exemption has to be availed in the first calendar year of the next block and you cannot keep it pending for later.

This means, that if you have one pending exemption of the previous block, you can use it in 2022 and not later.

The days you are traveling have to be marked leave and some employers insist on a continuous leave of four or five days without Saturdays or Sundays falling in between.

Now, comes the most important part of the LTA exemption – the documentary evidence. LTA exemption is on a re-reimbursement basis and hence proper evidence of travel has to be provided. The LTA exemption for two years in a block of four years is provided only when bills and other documents are furnished.

The LTA tax benefit can be claimed for travel of self and family members for journeys undertaken within India. For tax purposes, the family includes spouse and children, whether dependent or not, and parents, brothers, and sisters who are fully or mainly dependent on the taxpayer.

The non-taxable reimbursement of travel expenses is limited to the actual expenses incurred on air, rail, and bus fares only. Expenses incurred on hotel stays, local transportation, sightseeing, etc., will not qualify for the tax benefit.

Finally, remember that the process of claiming the tax benefit on LTA may vary among employers. It is always better to ask the accounts department for the documents formalities etc. for availing the tax benefit on LTA.

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