Plan a holiday and travel in India by March 31, 2025, to save income tax under Section 10(5) for FY 2024-25. If you align with this plan, you could enjoy a wonderful vacation with your family while also saving on income tax by utilising any unused leave travel allowances. To pull this plan off successfully, you need three things:
- Leave travel allowance (LTA) component in your salary structure
- Unused LTA for the current block (2022-2025)
- An employer where Monday (March 31, 2025) is a holiday on account of Eid al-Fitr.
According to Section 10(5), salaried employees with a leave travel allowance (LTA) component in their salary structure can utilise this tax-exempt concessional travel allowance facility. Section 10(5) states that employees are eligible to claim a tax exemption for travel expenses under LTA for travel undertaken by themselves, their spouse, and children during the leave period.
Read below to find out how taking a holiday can help you save income tax and whether LTA is available under the new tax regime.
What is LTA?
Leave travel allowance (LTA) is part of an employee’s CTC (cost-to-company) package. The company provides this allowance to cover the travel expenses made while on a vacation. The employee is entitled to reimbursements through the LTA allowance for travel expenses incurred while on vacation leave, which include public transportation, such as trains and flights, etc.
Can LTA be claimed under the new tax regime?
Abhishek Soni, Chartered Accountant and Co-founder of Tax2win, says you cannot claim LTA and save tax under the new tax regime.
“Under the new tax regime, LTA exemption is not available, meaning employees who choose this regime will not receive any tax benefits on LTA. Instead, the entire LTA amount will be fully taxable as part of their salary,” says Soni.
When can LTA be claimed under the old tax regime?
For the present LTA Block (January 1, 2022-December 31, 2025), the last date to take LTA tax exemption is December 31, 2025. If you use this LTA block on or before March 31, 2025, then you can save income tax for FY 2024-25. If you take the LTA block after March 31, 2025, then it will be applicable for FY 2025-26.Aditya Chopra, Managing Partner, The Victoriam Legalis (TVL), says, “Leave travel concession (LTC) or leave travel allowance (LTA) is a concessional travel facility introduced for employees to visit any place in India during a block of four years, within which this concession can be availed twice.”
How to use LTA by March 31, 2025, if you want to save tax for FY 2024-25?
The good thing is that March 31, 2025, is a public holiday for most employees and falls on a Monday. This indicates a long weekend, spanning Saturday, Sunday and Monday. If you are working in a company where Monday (March 31, 2025) is a holiday due to Eid, then take full advantage of this opportunity. Go travel with your family and make memories; at the same time, save income tax.
However, do remember to check your company’s HR policy regarding the last date for submitting documents for LTA claims.
Abhishek Soni of Tax2win explains how to make this plan work:
- Tax regime: If you opt for the old tax regime, you can claim leave travel allowance (LTA) and avail of the tax exemption.
- Take Eligible Travels: LTA is a component of your salary that covers the cost of travel during a vacation. The travel must be within India for the employee and their eligible family members. The tax exemption covers only the cost of tickets for travel by air, rail, or bus; other expenses, such as accommodation, food, sightseeing, or local transport, are not eligible for exemption. Also, the journey must be made using the shortest route between the place of origin and the destination.
- Keep Documentary Proof: Employees must retain and submit proof of actual travel expenses (travel tickets, boarding passes, etc.)
How much LTA can be claimed?
As per the Income-tax Act, 1961, you cannot claim more of the LTA tax exemption than the actual money spent on travelling. Also, the definition of ‘travelling’ is not what’s usually thought of. “According to Rule 2B of the Income-tax Rules, 1962, only travel expenses incurred for the shortest route between the origin and base location and the destination will be exempt from tax,” says Chopra.
There are defined rules for the travel routes and the class of tickets eligible for LTA exemption in the income tax rules. You can only claim a tax deduction for LTA-related travel expenses incurred for airline economy tickets for the shortest route to your destination or the amount spent, whichever is less. For train travel, the fare of first-class AC travel or the actual expense, whichever is lower, will qualify for LTA exemption.
Soni explains the above concept using an example:
The LTA tax exemption is limited to the actual travel cost incurred or the amount provided by the employer, whichever is lower.
Example 1:
If an employer provides Rs 25,000 as LTA, but the employee spends Rs 35,000 during his/her holiday vacation, only Rs 25,000 will qualify for tax exemption.
Example 2:
If an employee spends Rs 20,000 on travel, the tax exemption will be Rs 20,000, even if his/her employer offers Rs 25,000 as LTA.
Procedural aspects to follow for LTA tax exemption
The Income-tax Act, 1961, did not specify the exact process to follow for claiming tax exemptions for LTA. However, the Income Tax Rules stated that employees need to submit proof of travel expenses for LTA claims. This is why employers follow their own policies for determining LTA submissions and deadlines.
SR Patnaik, Partner (Head-Taxation), Cyril Amarchand Mangaldas, explains how to claim benefits of LTA:
“For any travel, it would be essential to maintain the necessary receipts, original bills, and invoices for air travel and submit the proof of travel to claim the tax benefits with the employer. The employee shall have to file Form 12BB with the income tax department along with the evidence for costs incurred for the journey to avail the benefit,” he says.
There are multiple factors that define the concept of defined block of years for LTA tax exemption
Soumya Singh, Principal Associate, DMD Advocates, says that there are multiple factors at play here. They are:
- The income tax rules state that the exemption can be claimed in respect of any two journeys in a block of four years. The present running block is the 10th block (from 2022-2025).
- A maximum of one unused journey can be carried forward.
- The exemption for the said carry-forwarded journey can be claimed for the first journey in the calendar year immediately succeeding the end of the block of four years.
- Therefore, LTA in respect of a maximum of three journeys can be availed in a block period, provided there was an unused LTA journey in the previous block period.
- The tax exemption in respect of such unused LTA journeys from the previous block period should be taken in the first year of the new block period and not beyond.
Soni explains the concept using an example.
Example: The current LTA block year is 2022-2025. So, if you have either not claimed LTA or have claimed it only once, you can carry forward the unclaimed LTA to 2026 (the first year of the next block, 2026-2029). However, if you do not claim it in 2026, the benefit will lapse, and you will lose the opportunity to claim it, thus losing the tax exemption under Section 10 (5).
