Saturday, January 5, 2013

Save Tax By Claiming LTA

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Holiday season is approaching and people will be planning for vacations with family to spend time together with them and to rejuvenate themselves. You can take advantage of the vacation you take now to save tax under leave travel allowance or LTA.

Under Section 10 (5) of the Income-Tax Act, an employee can undertake a trip within the country by taking earned leave. The employee can then claim an exemption for the amount spent on travel by submitting bills to his or her employer. The underlying assumption here is that the employee's salary has the LTA component as a part of his or her salary package.

Few important points to know about saving tax through LTA:

  • LTA can be claimed for travel related expenses such as air/train/bus tickets or a rented vehicle. However, you cannot claim expenses incurred on lodging and other allied expenses under LTA. 
  • A businessman or self-employed person cannot pay himself or herself LTA.
  • LTA can be claimed for above expenses of self, spouse (even if spouse is working), children as well as dependent parents and siblings. However, this exemption is limited to two children born on or after October 1, 1998. The restriction is not applicable to children born before this date. Employee needs to travel with family to claim such exemption. If family travels to another destination without you, LTA cannot be claimed for family.
  • LTA cannot be claimed for international travel. It can only be claimed for domestic travel.
  • An employee has to take earned leave from the company and travel to the desired destination to claim LTA.
  • An employee cannot claim this tax benefit every year. It can be claimed only twice in a pre-defined block of four calendar years. The claim can be in alternate years or even consecutive years. The present block started from January 1, 2010 and will last until December 31, 2013. You can carry forward one journey to the next block. However, this has to be utilized in the first year of the new block. In case your spouse is working, you can claim LTA for two years and your spouse can claim LTA for next two years. However, both cannot claim LTA for the same journey.
  • The claim amount is either the bill amount or the amount set by your employer, whichever is lower. If the amount of bills claimed is lower than the LTA component in your salary structure, the balance will be taxed as per your income tax bracket. If you do not claim LTA, the entire component will be taxed as per your income tax bracket.
  • If you have opted to fly, only the amount equal to the economy class airfare of the national carrier by the shortest route would be allowed as deduction. If you are travelling by road or rail, the cost of first class air-conditioned ticket by the shortest route would be considered for exemption. In case you are travelling to several places , the destination farthest from your residence will be taken into account for calculating the exemption amount. 
  • You have to submit the LTA form along with the copies of original tickets and travel bills to the company to file a claim. If you miss out on filing a claim at your company , you can claim for this exemption at the time of filing your income-tax returns and avail of a tax refund later. But that would make it unnecessary lengthy.
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