LTA exemption: What is Leave Travel Allowance and can you claim it at the time of filing your income tax return? | Business – Times of India

by The Technical Blogs

LTA exemption: Salaried individuals typically need to give proof of their expenses and investments to get tax deductions under the Income-tax Act. One common tax exemption available to salaried individuals is the Leave Travel Allowance or LTA. Leave Travel Allowance (LTA), often included in your salary, pays for your vacation travel expenses. It also covers travel costs for family members such as spouses, children (up to two if born on or after October 1, 1998), dependent parents, and dependent siblings.
To claim LTA, employees usually have to provide proof of their travel expenses to their employers within specific deadlines. But what if you have missed the March 31 deadline to submit LTA exemption proofs to your employer? Can you still claim LTA?
Let’s first understand who can claim LTA:

Who can claim LTA?

Both private and central government employees qualify for LTA exemption. In the private sector, an allowance is typically allocated for leave travel, which employees can use to claim the exemption. Government employees, on the other hand, receive benefits in the form of trips, which may have additional conditions regarding the number of journeys or the allowed amount per person.
Only those meeting specific conditions can receive LTA exemption. Shalini Jain, Tax Partner at EY India, was quoted by ET as explaining, “An employed person having LTA as a component specified in their salary structure may claim an exemption under Section 10(5) of the Income-tax Act, 1961 (Act)…”
LTA can be claimed for two out of every four years in a specified block. Alok Agrawal, Partner at Deloitte India, notes, “The current block for LTA claims is 2022 to 2025.”
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Remember, the claim cannot surpass the actual travel expenses or the LTA provided by the employer. “The exemption is available for the shortest route from the place of origin to the place of destination. Further, there are defined rules for the travel routes, and class of tickets up to which the exemption may be claimed,” he further explains.
Private employers have their own policies regarding LTA, which may cover various aspects such as mandatory leave during travel instead of using weekends, submission of original documents like boarding passes, and the timing of LTA claims for better administrative management. Employees are required to adhere to these rules and regulations, as explained by Kuldip Kumar, Partner at Mainstay Tax Advisors LLP.
Shalini Jain clarifies that exemptions for travel expenses within the city are not permitted. Additionally, airport transfers, such as travel from the airport to the hotel and vice versa, may also not be eligible for exemption.

Claiming LTA: Employer vs ITR

The procedure to claim LTA is not explicitly outlined in the Act or the Income-tax Rules, 1962. However, Shalini Jain explains that Rule 26C of the Rules specifies that employees must submit evidence of expenditure using Form 12BB to determine tax exemption and taxable income.
If you’re eligible for LTA, it’s advisable to submit all necessary documents to your employer to claim the exemption and avoid potential scrutiny. Failure to provide proof of investments and expenses may lead to the assumption that you haven’t incurred these expenses, resulting in higher TDS deductions by your employer.
However, even if you forget to claim LTA through your employer, you still have the option to do so while filing your income tax return for the financial year. Agrawal explains that there’s no restriction in the income tax law or filing utilities against claiming the LTA amount directly during ITR filing.
Shalini Jain reinforces this, stating that the Act and Rules don’t impose any restriction on directly claiming LTA exemption in the ITR by the employee. If the employer hasn’t considered LTA exemption for any reason, the employee is entitled to claim it directly in the ITR.
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LTA exemption challenges while filing ITR

Taxpayers might encounter challenges when claiming allowances like LTA during ITR filing. Abhishek Soni, co-founder and CEO of Tax2win, points out that since the responsibility for tax deduction rests with the employer upon the employee’s submission of proof, there could be complexities.
Agrawal further explains that if an employee fails to claim LTA through the employer due to the exemption not being provided in Form 16, it might lead to scrutiny from the income tax department during ITR processing.
Shalini Jain adds that employees claiming LTA directly while filing the ITR could face the risk of receiving notices from tax authorities to verify the claims.
“Here it will be imperative (for you) to prove to the income tax authorities the genuineness of your claim through all the supporting evidence and that it was missed to be claimed through your employer,” advises Ritika Nayyar, Partner at Singhania & Co. She emphasises the importance of preserving all relevant documents related to travel and expenses to justify the exemption.

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