Section 10(5) of the Income Tax Act allows for certain tax exemptions on travel expenses provided by an employer to an employee. This provision applies to both domestic and international travel. The purpose of this section is to provide relief to individuals who incur travel expenses as a part of their employment.
[Exemption will not be available if the employee opts to be taxed under section 115BAC]
To avail the benefits under Section 10(5), an individual must meet the following eligibility criteria:
- The travel concession or assistance must be provided by the employer.
- The travel must be undertaken by the employee and his family members.
- The travel must be for the purpose of leave, vacation, or any other similar purpose.
The employee is entitled to exemption under section 10(5) in respect of the value of travel concession or assistance received by or due to him from his employer or former employer for himself and his family, in connection with his proceeding—
(a) on leave to any place in India.
(b) to any place in India after retirement from service or after the termination of his service.
The exemption shall be allowed subject to the following:
(i) where journey is performed by air — Maximum exemption shall be an amount not exceeding the air economy fare of the National Carrier by the shortest route to the place of destination;
(ii) where places of origin of journey and destination are connected by rail and the journey is performed by any mode of transport other than by air — Maximum exemption shall be an amount not exceeding the air-conditioned first class rail fare by the shortest route to the place of destination; and
(iii) where the places of origin of journey and destination or part thereof are not connected by rail and the journey is performed between such places — The amount eligible for exemption shall be:
(A) where a recognised public transport system exists, an amount not exceeding the 1 St class or deluxe class fare, as the case may be, on such transport by the shortest route to the place of destination; and
(B) where no recognised public transport system exists, an amount equivalent to the air- conditioned first class rail fare, for the distance of the journey by the shortest route, as if the journey had been performed by rail.
Exemption will, however, in no case exceed, actual expenditure incurred on the performance of journey.
HOW MANY TIMES CAN EXEMPTION BE CLAIMED?
- The assessee can claim exemption in respect of any two journeys in a block of 4 years. For this purpose, the first block of 4 years was calendar years 1986-89, second block was 1990- 93, third block was 1994-97, fourth block was 1998-2001, fifth block was 2002-05, sixth block was 2006-09, seventh block was 2010 to 2013, eighth block was 2014-17, the ninth block is 2018-2021 and tenth block will be 2022-2025.
- If the assessee has not availed of the exemption of LTC in a particular block, whether for both the journeys or for one journey, he can claim the exemption of first journey in the calendar year immediately succeeding the end of the block of four calendar years. In other words, maximum one journey can be carried forward and that too only for the first journey in the following calendar year unless the period is otherwise extended. Such journey undertaken during the extended period will not be taken into account for determining the tax exemption of two journeys for the succeeding block.
Exemption available only in respect of two children
The exemption relating to LTC shall not be available to more than two surviving children of an individual after 1.10.1998.
Exception: The above rule will not apply in respect of children born before 1.10.1998 and also in case of multiple birth after one child.
Here are some examples of situations where the exemption under Section 10(5) will be available:
- An employee receives a travel allowance from his employer to travel to his hometown for leave. The employee uses the travel allowance to purchase airfare and hotel accommodations. The travel allowance will be exempt from income tax in the employee’s hands.
- An employee receives a travel allowance from his employer to travel to a tourist destination in India for leave. The employee uses the travel allowance to purchase train fare and local transportation expenses. The travel allowance will be exempt from income tax in the employee’s hands.
- An employee receives a travel allowance from his employer to travel to his hometown for leave. The employee uses the travel allowance to purchase airfare and hotel accommodations for himself and his family. The travel allowance will be exempt from income tax in the employee’s hands.
Important Points to be Note:
- In case the LTC is encashed without performing the journey, the entire amount received by the employee would be taxable.
- Family for this purpose includes:
(a) the spouse and children of the employee;
(b) parents, brothers & sisters of the employee, who are wholly or mainly dependent upon him.
- The exemption can be availed for the journey undertaken while on leave during the tenure of service or even after retirement/termination from service.
- The exemption is allowed only in respect of fare. Expenses incurred on porterage, conveyance from residence to the railway station/airport/bus stand and back, boarding and lodging or expenses during the journey will not qualify for exemption.
- Exemption is available in respect of shortest route. Where the journey is performed from the place of origin to different places in a circular form or in any other manner, the exemption for that journey will be limited to what is admissible for the journey from the place or origin to the farthest point reached, by the shortest route.
Documentation and Reporting
To claim the exemption under Section 10(5), the employee must provide the necessary documentary evidence of travel expenses to the employer. This includes travel tickets, boarding passes, and any other relevant documents. The employer, in turn, must report these exemptions accurately in the employee’s Form 16 or salary certificate.
Travel Concession or Assistance under Section 10(5) is a beneficial provision for employees, providing tax relief on travel expenses. It is important for individuals to understand the eligibility criteria, exemption limits, and documentation requirements to avail the benefits under this section. By following the necessary procedures and reporting accurately, employees can ensure compliance with tax regulations and maximize their tax savings.