Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

Direct & Indirect Taxes, Tax Ready Reckoner, Tax Management, Tax Act. & Rules, Tax Planning & Tax Savings.

[Section 10(5)]- Tax Treatment of Leave Travel Concession or Assistance (LTC/LTA) – for Computing Salary Income

[Section 10(5)]- Tax Treatment of Leave Travel Concession or Assistance (LTC/LTA)  - for Computing Salary Income
[Section 10(5)]- Tax Treatment of Leave Travel Concession or Assistance (LTC/LTA) – for Computing Salary Income
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 1st 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 airconditioned first class rail fare, for the distance of the journey by the shortest route, as if  the journey had been performed by rail.

See also  ‘Residential Status’ under Income Tax Act. 1956

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, ninth  block is 2018-2021.
  • 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. 

IMPORTANT NOTES 

1.            In case the LTC is encashed without performing the journey, the entire amount received by the employee  would be taxable. 

2.            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. 

3.            The exemption can be availed for the journey undertaken while on leave during the tenure of service or  even after retirement/termination from service. 

4.            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. 

5.            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 of origin to the farthest point reached, by the shortest  route. 

Amendment made by the Finance Act, 2020 

6.            If an employee opts to be taxed as per the new alternative regime under section 115BAC, he will  not be entitled to claim exemption of leave travel concession as discussed above.

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