Decoding the LTA exemption provisions

An LTA is limited to actual expenses incurred on air, rail and bus fares only. No other expenditure such as local conveyance, sightseeing, etc., qualify for tax breaks. One can avail the LTA for two journeys in the block of four years. Currently, the block applicable is for the calendar year 2018-21.

Air Travels :- LTA can be claimed for air travel provided the class fare is economy of a national carrier. The reimbursement can be availed for the shortest route or the total sum spent, whichever is lower.

Train Journeys :- An employee cannot avail an LTA exemption for a train journey by the first class fare - the same applies to any journey that is initiated by any other mode of travel.  However, LTA can be availed for a journey made by any other class fare by the shortest route or the actual amount spent.

Other modes of travel :- Often, the place of origin and the destination may not be connected by typical methods of transport. In such cases, the LTA tax exemption will be available only if:

(a) Recognised public transportation

The exemption will only be allowed for a fare lower than first class or deluxe class fare by the shortest route or the actual amount spent.

(b) Unrecognised public transport

The exemption will be lower of the first class rail fare for the shortest route or the actual amount spent.

Often people travel to different locations in one single trip, in such an event where an employee's journey involves multiple stops, the LTA exemption is limited to the journey from the place of origin to the farthest point reached by the shortest route.

In case an employee fails to avail the LTA for one or two permitted journeys in a particular block of 4 years, then he/she is entitled to carry over one trip to the next block.

In simpler words, in case of a carryover, the exemption can be availed for 3 journeys in a block, provided the exemption for at least 1 journey is claimed in the first year of the next block.

The first step to availing the LTA includes furnishing documentary evidence of the travel to the employer. If an employee does not travel at all or fails to submit the bills, the LTA amount is paid as part of the employee's salary, post the tax deduction as per the applicable income tax slab.

The LTA tax break is like a reimbursement that is non-taxable. Therefore, it is for the actual expenditure on the fare. Hence, if no journey is performed, no tax break is available.

While the rules set by the Income-Tax Department are reasonably straight forward, several organisations may follow their established guidelines. Therefore, it would behove every employee to first get clarity about their LTA exemption before putting together any travel plans.