How To Calculate Travel Allowance – Rule, Eligibility, Claims, and Conditions
There are various exemptions provided by the Income Tax Act, of 1961 to salaried persons. The deduction is an amount that is reduced from a total taxable income, exemption means exclusion from total taxable income. This helps corporate travel management companies‘ employers structure the cost of employees to the company (CTC) in a tax-efficient manner. One such exemption that employers widely use is Leave Travel Allowance (LTA) or Leave Travel Concession (LTC). This article details how to calculate a travel allowance.
What is Leave Travel Allowance (LTA)?
Leave travel allowance or LTA is an exemption for allowance/assistance received by the employee from his employer for traveling on leave. It is a type of allowance given to the employee by employers for travel. This allowance covers within-country travel costs when the employee is on vacation from work. Before making the trip, a lot of considerations must be made in order to qualify for an LTA exemption. Rules have been laid down under the income-tax provision with respect to claiming exemption from LTA.
Some rules related to the exemption of tax are stated clearly under Section 10(5) of the Income Tax Act, 1961. Rule 2B of Section 10(5) of the Income Tax Act, 1961 ensures the exemption of tax and also details the conditions subject to tax exemption.
Conditions for Claiming LTA
Below are stated the conditions or requirements for claiming the exemption.
1 ) It is important to have an actual journey to claim the exemption
2) Internation travel is not covered by the LTA. It is only domestic travel that is considered for exemption i.e. travel within India.
3) The LTA exemption is available for both employees alone or with their families. Here, the family includes the employee’s spouse, children, and wholly or mainly dependent parents, brothers, and sisters of the employee. However, the exemption is not available for more than two children of an employee born after 1 October 1998. In cases of multiple births on a second occasion after having one child is also not affected by this restriction.
Below is the list of expenses that are exempted under Leave Travel Allowance
1)Airfare – Airfare by the shortest route or amount spent will be exempted depending on whichever is lesser.
2)Train fare – The train fare for the shortest route or the amount spent on travel will be exempted, depending on which is less.
3)Other modes of transport – For a destination not connected by air or rail, an amount equivalent to a first-class, deluxe, or AC first-class fare, whichever is lower, can be claimed for exemption under LTA.
Calculation of LTA
The first step to knowing How To Calculate Travel Allowance involves an employee submitting the LTA form along with the travel bills. The employee is required to keep proof of their travel, such as boarding passes, flight tickets, duty passes, and other documentary proof, in case it is required by the employer for assessment. It is simple to calculate Leave Travel Allowance. However, there are certain things to take into consideration. An employee can take LTA for two trips in a period of four years. Block years are different from the financial year, which is decided by the Income Tax Department.
The period from 1st January 2022 and 31st December 2025 is the current block year. Here, employees can claim two journeys that happened between these years. But if the employees have not placed any claims during these block years, they can move the allowance to the next block years but not to the following next block.
Leave Travel Allowance can be considered the best tax-saving tool that an employee can avail of. It is an allowance paid to the employee by the employer when the former is traveling with their family or alone. And the amount paid as travel allowance is tax-free. Hence it is important to have clear guidelines to know how to calculate travel allowance. Travel management programs help employees take advantage of tax benefits by incorporating their LTA details.
An employee is required to keep original travel tickets, a travel agent’s invoice, and other travel proof in safe custody if he plans to claim the LTA benefit. They should also be aware of the company policy about how to calculate travel allowance before making full use of the benefits and claiming travel allowances for tax exemption. If an automated travel management system integrates with the HRMS of the company, this facilitates the process of an LTA claim.