Take heart; it’s a combo that’s known to make the mightiest cry and crumble. You, too, have finally given in to the twin formidable — kid pester power and spousal barbs — and have booked the exotic summer holiday that travel writers rave about.

Sure, it has burnt a nice, big hole in your pocket. But that’s a small price to pay for family joy and temporary quiet. Also, remember, your old friend, the taxman, is always there to provide you shoulder and succour. Enter Section 10(5) of the Income Tax Act.

Under the section, you get a tax break on the leave travel allowance (LTA) or leave travel concession (LTC) you receive from your employer. But while kind, the taxman is also finicky. So the tax break comes with many strings attached.

When?

You may be getting LTA from your employer annually as part of your salary package and you may also be going on holiday every year. But if you thought you can get a tax break every year, sorry. The benefit can be claimed only twice in a block of four calendar years.

Here’s how it works. The current block for LTA tax break is from January 2018 to December 2021. If you claim the tax break in 2018 and 2019, you cannot do so again in 2020 and 2021. If you claim it in 2018, but not in 2019, you can claim it once more in either 2020 or 2021. And if you do not claim it in both 2018 and 2019, you can claim it in both 2020 and 2021.

One more thing: in one calendar year, you can claim only one LTA tax break.

What if you somehow withstood family pressure, worked non-stop for the promotion and didn’t go on holidays in the entire four-year block, or went just once in four years, or were absent-minded (went on holidays, but forgot to claim the LTA tax break)?

The taxman lets you carry over one tax break to the next block period, but you must use it in the first year of the block. So effectively, you can claim three LTA tax breaks in the next four-year block.

You may dream of a trip to foreign locales such as Bali, Paris or Cape Town to broaden your minds. Go ahead, it will be great fun (and also great expense). But don’t expect any tax break as the LTA tax exemption is available only on travel expenses incurred within India.

For whom?

The LTA exempted from tax is not for all and sundry. It is limited to the travel expense for yourself and your family. Family, in the taxman’s rulebook here, means spouse and children (dependent on you or not), and parents and siblings dependent on you.

Also, the tax break is only for two children if they are born after October 1, 1998. But in a far-sighted and gracious gesture, this restriction does not apply if you had more than one child (twins, triplets and so on) after the first child.

How much?

You may be getting a tidy sum as annual LTA from your employer. But the tax exemption is limited to the travel expense you incur and subject to limits specified by the taxman.

For instance, if you get an LTA of ₹25,000 a year from your employer, but spend just ₹15,000 on travel for yourself and family, you get the tax break only on ₹15,000; the remaining ₹10,000 will be taxable. Also, while you are free to spend your money and travel in ultra-luxury, the tax break is restricted to the cost of basic travel comforts. So the economy air fare of the national carrier (though you can fly any airline) or first-class AC rail fare (or its equivalent on other transport modes, if there is no rail connectivity), is what you get as the maximum exemption. Also, this exemption is limited to the cost of travel via the shortest route from the starting point to the farthest point in the journey, and back. If your actual travel cost is less than these limits, the tax benefit is restricted to your spend.

Also, note that you don’t get any break on the cost of food, stay, local conveyance and other expenses incurred on the trip. Earlier, some employers used to allow the LTA tax breaks based on just an expense declaration from the employee. But it is now compulsory for employees to submit travel bills to employers for the tax break to be considered in the salary calculation.

Also, it’s a good idea to keep copies of these documents handy just in case the taxman has some queries later.

Related Topics
comment COMMENT NOW