Section 10(5)-Leave Travel Concession (LTC)

Section 10(5) of the Income Tax Act, 1961, provides an exemption for Leave Travel Concession (LTC) or Leave Travel Allowance (LTA) received by an employee from their employer. This exemption covers the cost of travel incurred by the employee and their family when they go on leave.

However, the exemption is limited and subject to certain conditions.

Conditions for Exemption Under Section 10(5)

1. Eligible Recipient: Only employees(not self-employed individuals) can claim this exemption.
2. Mode of Travel:
   • Air: Economy class fare of the shortest route(for domestic flights).
   • Rail: AC First Class fare (if traveling by train).
   • Other Modes: If traveling by any other mode (e.g., bus, taxi), the exemption is limited to equivalent AC First Class rail fare.
3. Frequency of Claim:
   • The exemption can be claimed twice in a block of 4 years(current block: 2022-2025).
4. Family Coverage:
   • Covers spouse, children, and dependent parents/siblings.
   • Maximum of 2 children(born after October 1, 1998).

Example of LTC Exemption

Case 1: Travel by Flight

• Employee: Mr. A receives ₹30,000as LTA from his employer.
• Journey: Delhi → Mumbai (Economy class airfare = ₹8,000 one way).
• Exemption:
  • Since the exemption is based on the shortest route, only ₹16,000(₹8,000 × 2) is exempt.
  • Taxable LTA: ₹30,000 – ₹16,000 = ₹14,000(taxable as salary).

Case 2: Travel by Train

• Employee: Ms. B receives ₹25,000as LTA.
• Journey: Chennai → Kolkata (AC First Class fare = ₹4,000 one way).
• Exemption:
  • ₹8,000(₹4,000 × 2) is exempt.
  • Taxable LTA: ₹25,000 – ₹8,000 = ₹17,000(taxable as salary).

Case 3: Travel by Car (Other Mode)

• Employee: Mr. C receives ₹20,000as LTA.
• Journey: Bangalore → Hyderabad (AC First Class equivalent rail fare = ₹3,000 one way).
• Exemption:
  • ₹6,000(₹3,000 × 2) is exempt.
  • Taxable LTA: ₹20,000 – ₹6,000 = ₹14,000(taxable as salary).

Key Points to Remember

✅ Only travel cost is exempt (not accommodation or food).

✅ Must submit proof (tickets, boarding passes) to the employer.

✅ No exemption for foreign travel (only domestic trips qualify).

✅ If LTA is not claimed in a block, one trip can be carried forward to the next block.