Income Tax Exemption on LTC – Income Tax provision relating to Leave Travel Concession under Section 10 (5)

Income Tax Exemption on LTC – Income Tax provision relating to Leave Travel Concession under Section 10 (5)

Leave Travel Concession applicable to Central Government Employees and other Salaried Class Employees is exempted under Section 10 (13A) of Income Tax Act as a prequisite to an employee. However, Income Tax Exemption on LTC is not blanket one and involves many conditions such as spending of amount received under LTC for purpose of preforming holiday travel declared, restriction of exemption to economy fare of the national carrier by the shortest route to the place of destination in the case of Air Travel etc.

We have provided here a brief on eligibility criteria for availing Income Tax Exemption on LTC:

1. LTC / LTA granted by an employer is exempted from Income Tax only when the amount is spent for the purpose of performing holiday Travel to a place in India. While LTC for government employees is only an reimbursement of travel expenses, this restriction would apply only for employees of Private Companies which pay LTA as lumpsum irrespective of employee performing holiday travel.

Foreign Travel – As per the provisions of the Rules, exemption is not allowable in case of travel abroad.

Obligation of the employer –The employer has to satisfy the obligation that leave travel (fare) concession is not taxable in view of section 10(5)  and he is not only required to be satisfied about the provisions of the said clause but also to keep and preserve evidence in support thereof.

2. In the case of air travel, Income Tax Exemption is restricted to economy fare of the national carrier by the shortest route to the place of destination. As LTC Rules of Central Government Employees provides for granting LTC by Air only if LTC 80 Tickets of Air India are purchased for the shortest route to the destination, this condition would again would apply only to Private Employees.

3. IT Exemption on LTC performed by self and family. The term Family includes – Spouse and children of the employee (not more than two surviving children born after October 1998). It also includes parents, brothers, sisters who are wholly or mainly dependant on the employee. The child includes step child and adopted child.

4. The exemption shall be available in respect of 2 journeys performed in the block of 4 calendar years.

5. Exemption is available only in respect of air fare, rail fare and bus fare. No exemption will be available in case of other expenses.

Extract of Section 10(5)

“Section 10(5)  in the case of an individual, the value of any travel concession or assistance received by, or due to, him,—

(a)  from his employer for himself and his family, in connection with his proceeding on leave to any place in India ;

(b)  from his employer or former employer for himself and his family, in connection with his proceeding to any place in India after retirement from service or after the termination of his service,

subject to such conditions as may be prescribed (including conditions as to number of journeys and the amount which shall be exempt per head) having regard to the travel concession or assistance granted to the employees of the Central Government :

Provided that the amount exempt under this clause shall in no case exceed the amount of expenses actually incurred for the purpose of such travel.

Explanation.—For the purposes of this clause, “family”, in relation to an individual, means—

(i)  the spouse and children of the individual ; and

(ii)  the parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the individual; ]”

Conditions for the purpose of section 10(5) as Prescribed in Rule 2B of Income Tax Rules- Extract of Rule 2B

2B. (1) The amount exempted under clause (5) of section 10 in respect of the value of travel concession or assistance received by or due to the individual 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,

Shall be the amount actually incurred on the performance of such travel subject to the following conditions, namely :—

[(i)  where the journey is performed on or after the 1st day of October, 1997, by air, 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 on or after the 1st day of October, 1997, by any mode of transport other than by air, 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 on or after the 1st day of October, 1997, 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 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.]

(2) The exemption referred to in sub-rule (1) shall be available to an individual in respect of two journeys performed in a block of four calendar years commencing from the calendar year 1986 :

[Provided that nothing contained in this sub-rule shall apply to the benefit already availed of by the assessee in respect of any number of journeys performed before the 1st day of April, 1989 except to the extent that the journey or journeys so performed shall be taken into account for computing the limit of two journeys specified in this sub-rule.]

(3) Where such travel concession or assistance is not availed of by the individual during any such block of four calendar years, an amount in respect of the value of the travel concession or assistance, if any, first availed of by the individual during first calendar year of the immediately succeeding block of four calendar years shall be eligible for exemption.

Explanation : The amount in respect of the value of the travel concession or assistance referred to in this sub-rule shall not be taken into account in deter-mining the eligibility of the amount in respect of the value of the travel con-cession or assistance in relation to the number of journeys under sub-rule (2).]

[(4) The exemption referred to in sub-rule (1) shall not be available to more than two surviving children of an individual after 1st October, 1998 :

Provided that this sub-rule shall not apply in respect of children born before 1st October, 1998, and also in case of multiple births after one child.]