An individual who has opted for the old tax regime for FY25 must submit tax-saving proofs to ensure that less tax (due to the tax savings) is deducted from his/her salary and to avoid the hassle of claiming a refund while filing the year’s income tax return (ITR).
If eligible, one can claim various tax exemptions and deductions under the old tax regime while filing ITR as well; these include HRA exemption, Section 80C, and other deductions. However, many people are unaware that the exemption claimed for leave travel allowance (LTA) in ITR can face detailed scrutiny/questioning by the income tax authorities if the exemption is not claimed through an employer.
What is the LTA exemption available to salaried employees?
A salaried employee opting for the old tax regime is eligible to claim an exemption for leave travel allowance (LTA) (provided LTA is part of the employee’s pay package) subject to certain conditions. An exemption for LTA is available under Section 10(5) of the Income Tax Act.
A salaried employee can claim an exemption for LTA based on the actual expenses incurred on transport (rail, flight tickets etc) while travelling to any place in India. The amount eligible for exemption is contingent upon several factors. These include the amount of LTA to be received from the employer, the amount you have spent, the cost of travel for the shortest distance, etc. Further, this exemption is not applicable in every financial year. LTA exemption cannot be claimed for foreign travel.
ET Wealth online decodes how much exemption you can claim, the documents you need to submit, and other things to keep in mind.
LTA eligibility criteria: Who can claim LTA exemption?
Abhishek Soni, CEO of Tax2win.in, says, “LTA exemption can be claimed by an employee provided he/she has LTA as a component in the salary structure. LTA also covers travel expenses incurred for family members. This includes spouse, children (up to two if born on or after October 1, 1998) and dependent parents.”
Chander Talreja, Partner at tax consulting firm Vialto Partners, says, “An employee can claim the above exemption in respect of any two journeys in a block of four calendar years. The current block is the calendar years of 2022 to 2025. Where the LTA exemption is not claimed in a particular block, then such exemption can be availed in respect of the first journey in the immediately following calendar year falling in the next block, at the choice of the employee.”
Maximum LTA exemption that can be claimed
The maximum amount of tax exemption that a salaried employee can claim depends on three factors: a) the amount paid as LTA by the employer and b) the actual amount spent on the travel; c) The amount permitted by government rules regarding this – as explained below.
Talreja says, “The LTA exemption amount is available for the shortest route from the place of origin to the destination place. There are defined rules for this. For instance, if a salaried employee travels by air, then the lower of either actual expense or economy class fare will be exempt. Similarly, if travelled by train, then the lower of the actual expense or first-class AC fare will be exempt.”
Further, it is clarified that money spent on local travel at the destination is not permitted to be claimed as part of LTA.
Also read: List of tax-saving FDs offering highest interest rate
How to claim LTA exemption, documents required, and process to follow
One can claim LTA exemption by submitting proofs of travel to his/her employer. Soni says, “The Income Tax Act and/or Income Tax Rules have not defined the specific process to claim LTA exemption. Different companies follow different rules to allow employees to claim LTA exemption. However, Rule 26C of the Income Tax Rules states that employees need to submit evidence of expenditure in Form 12BB for the purpose of determining the LTA exemption and taxable income.”
Talreja says, “Generally, employees are required to submit all the invoices related to travel. This includes travel tickets and boarding passes in their original form for air travel. For train and bus travel, original/e-ticket railway tickets and bus tickets, respectively, are allowed for exemption. No other expenses, such as hotels, boarding, lodging, etc., are allowed for LTA exemption. An employee should also check the last date indicated by their employer to submit these documents and adhere to the internal prescribed policy in this regard.”
Also Read: This is the last date for current LTA block
What if LTA exemption proofs are not submitted to the employer?
There can be chances that an employee forgets to submit the LTA exemption proofs to the employer. Can he/she claim it while filing the ITR? According to tax experts, the Income Tax Act does not specifically bar claiming of LTA exemption while filing ITR.
Soni says, “Under the Income Tax Act, there is no restriction on claiming LTA in ITR, even if it was not claimed through the employer. However, as a general practice, the responsibility for tax deducted at source (TDS) lies with the employer, who issues Form 16, reflecting all deductions and exemptions availed by the employee. Given this framework, it is advisable to claim LTA exemption through the employer to ensure smooth tax compliance and avoid discrepancies. If an employee claims LTA directly in the ITR without prior declaration to the employer, the Income Tax Department may issue a notice seeking relevant proof for the exemption claimed. Therefore, maintaining proper documentation is crucial to substantiate the claim if required.”
Talreja says, “Now, LTA exemption must be disclosed in the relevant schedule of the ITR form, whether claimed through the employer or otherwise. If the employee opts to claim LTA only at the time of filing ITR, then he should ensure that it is claimed as per the limits prescribed in the income tax rules and that all the documents supporting the claim are kept. The tax authorities can always audit the claim, and such supporting documents will be helpful. There will be a discrepancy in the salary income between Form 16 and the income tax return due to this LTA claim, which would need to be explained by the employee to the authorities.”
