LTA : Rules, Tax Exemptions and Conditions to claim

LTA (Leave Travel Allowance) is an allowance paid by employers to their employees when they are on leave and traveling alone or with family within India. Subject to certain conditions, it is tax-free in the hands of the employees.

What is LTA – Leave Travel Allowance?

LTA is an allowance received by the employee from his employer for travelling on leave. There are many situations that need to be considered before planning a trip for the purpose of claiming LTA.

Conditions to Claim LTA Exemption

  • Leave travel allowance should be part of employees Salary i.e employer pays an allowance to an employee as part of his/her salary
  • An exemption is applicable for incurred expenses by the employee and his/her family for the purpose of travel in India.
  • Family for purpose of leave travel allowance includes:
    • Spouse and children
    • Parents, brothers, and sisters who are wholly or mostly dependent on employee.
  • It covers only cost of travel for the trip (travel through rail, air or any other public transport). It does not cover the cost of hotel accommodation, food, etc.
  • Leave Travel Allowance covers only domestic travel and does not cover international travel
  • An exemption is available only for two trips in a block of four calendar years. The current block for leave travel is 2018 to 2021.
  • If an exemption is not availed during the block period, it can be carried over to the next block and used in the first year of the next block.

LTA Exemption

Section 10(5) of the Income Tax Act along with and Rule 2B have prescribed the conditions and amount of exempt leave travel allowance. Subject to these conditions, Leave Travel Allowance is tax-free in the hands of the employees.

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Eligibility to Claim LTA

The LTA exemption is available only on the actual travel costs. Expenses such as sightseeing, hotel accomodation, food, etc are eligible for this exemption. It is also limited to the LTA provided by the employer.

How to Claim Exemption on Leave Travel Allowance?

Employees can claim Leave Travel Allowance exemption by submitting details in Form-12BB. With the newly introduced Form 12BB, employees can provide detail of their travel during the financial year. They should also submit the proof in support of their claim. Employees can submit boarding passes, air tickets, train tickets, invoices of travel agents, etc, as documentary proof to their employers.

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FAQs

Can I claim LTA on internation travel?

No. LTA can be claimed only for domestic travel. You can only claim LTA if the Employer provides it as part of your salary structure. You can claim an exemption on LTA under section 10.

Can I claim LTA every year?

No. You can claim LTA only twice in a block of 4 years. The current block of four years is 2018-2021. However, you can claim LTA reimbursement every year from your employer.

Do I have to submit any document proof to claim LTA?

Employees do not have to submit any proof to Income Tax Department while filing ITR on IT Portal. However, employees are advised to maintain proofs such as flight tickets, invoices from travel agents, passes, etc.

How to know exempt LTA amount?

Employees can know exempt Leave Travel Allowance amount from Form 16 issued by the employer at the end of the financial year. It is exempt u/s 10(5) of the Income Tax Act.

Which ITR can be filed if LTA exemption is claimed?

Since Leave Travel Allowance is a part of salary income. An employee can file ITR-1 while claiming exempt HRA. However, salaried needs to file ITR-2 if income is more than Rs. 50,00,000.

What is Gross Salary & How to Calculate Gross Salary

What is Gross Salary

In simple words, gross salary is the monthly or yearly salary an employee receives before any deductions are made from it. The gross salary an employee receives is never equal to the CTC or the Cost to Company.

Gross Salary = Basic Salary + All Allowances + All Benefits
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Gross Salary = Basic Salary + All Allowances + All Benefits

Components of Gross Salary

The gross salary can also be the gratuity and EPF subtracted from the CTC. Following are the components of the gross salary:

Understanding Components of Gross Salary in Detail

  • Basic Salary: Basic salary is the amount paid to an employee before any deductions are made or extra components are added to the salary. The basic salary is always lower than the gross salary or the take-home salary.
  • Perquisites: These are considerable amount of benefits received by an employee as a result of their position in an organization and are payable in addition to the salary received by them.
  • Salary Arrears: Most of us are well versed with the term arrears. To define, arrears refers to an amount that is paid as a result of a hike or increment in your salary.
  • House rent allowance: A House Rent Allowance is also one of the major salary components paid by the employer to their employees for accommodation expenses. Also, the HRA is applicable to both salaried and self-employed individuals.
Net Salary = Gross Salary - Mandatory Deductions (Professional Tax+Employee Provident Fund+TDS)
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Net Salary = Gross Salary - Mandatory Deductions (Professional Tax+Employee Provident Fund+TDS)

Difference Between Gross Salary and Net Salary

Gross Salary Net Salary
It is the amount of salary after adding all benefits and allowances but before deducting any tax It is the amount that an employee takes home
An individual’s gross salary includes allowances like medical allowance, conveyance allowance, etc Net Salary = Gross Salary – All deductions like income tax, pension, professional tax, etc. It is also known as take home salary
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Calculate PF on Gross Salary

The calculation of gross salary for the purpose of PF calculation is different than that used in the context of the payroll. Let us consider PF Gross to denote the salary to be considered for PF calculation.

PF Gross includes basic, Dearness Allowance, Conveyance, Other Allowance, etc. It excludes House Rent Allowance, Bonus, etc. as per the provisions of the PF Act.

Gross Salary under Section 17(1)

Section 17(1) includes the following amounts alongwith their salary:

  • Wages
  • Any advance of salary
  • Any fees, commission, perquisites, or profits in lieu of or in addition to any salary or wages
  • The contribution made by the Central Government or any other employer in the previous year, to the account of an employee under a pension scheme, referred to in Section 8OCCD.
  • Any payment received by an employee in respect of any period of leave not availed of by him; (Leave encasement or salary in lieu of leave).
  • The aggregate of all sums that are comprised in the transferred balance as referred to in sub-rule (2) of Rule 1] of Part A of the Fourth Schedule, of an employee participating in a recognized provident fund, to the extent to which it is chargeable to tax, under sub-rule (4) there, i.e., the taxable portion of transferred balance from an unrecognized provident fund to the recognized provident fund.
  • The annual accretion to the balance at the credit of an employee participating in a recognized provident fund, to the extent to which it is chargeable to tax under Rule 6 of part A of the Fourth Schedule.

FAQs

Where can I find my Gross Salary and Net Salary?

You will be able to find both either in Salary Slip or Form 16. Employer provides salary slip or Form 16 to each employee.

How can I increase my Net Salary/Take Home Salary?

You can increase your Net Salary/Take Home Salary by planning your tax-saving investments u/s 80C and other Chapter VI-A deductions. This will reduce your taxable income and TDS on Salary. But it is only possible if you provide your investment declaration to your employer correctly in Form 12BB.