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Are Travel Expenses Tax-Deductible?

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Published on February 21, 2022. EST READ TIME: 3 minutes

Under the Income-tax Act, 1961, there are a number of exemptions that are offered to salaried individuals. One of these exemptions is the Leave Travel Allowance. Travel benefit is one of the most common perquisites most private and public sector companies provide to their employees. It is a benefit that is provided to the employees to travel during their leave and there is tax exemption on the same as well. So, the next time you plan to take a trip, keep in mind that just like travel insurance, the benefit of LTA will make your travel smoother and more affordable.

However, it should be kept in mind that Leave Travel Allowance is not Transport Allowance. Transport Allowance is only used to reimburse an employee’s commuting expenses. Let us understand all you need to know about Leave Travel Allowance or LTA Benefit.

What is Leave Travel Allowance?

As the same suggests, Leave Travel Allowance is a benefit provided to cover travelling expenses during their leave from work. However, travel expenses only within the geographical boundaries of India are covered. No international travel is covered under LTA. The travel expenses under LTA are only covered under the Old Tax Regime of the Income Tax Act, 1961. While it may sound rather simple, there are many aspects that need to be kept in mind when claiming a tax deduction for LTA.

Let us first take a look at the conditions that are essential for claiming LTA

● The employee must be on leave to qualify for this exemption

● To claim the exemption an actual journey has to be made

● International travel cannot be covered under Leave Travel Allowance, only domestic travel

● The exemption can be claimed only by the employee individually or with his family (family includes the employer’s spouse, dependent children, dependent parents and dependent siblings)

● The exemption would not be available for over two children of an employee born after October 1, 1998

● To file this claim one has to provide all related bills & documents to back their claim amount

Eligibility to claim LTA:

Employees from public and private sectors can claim LTA benefits, regardless of when they started working. There is no such waiting period for an employee does not have to be eligible for LTA after joining a company. At the same time, the maximum covered amount under LTA is the sole decision by management. Also, if LTA is part of CTC, it must be included in the final settlement while leaving an organization.

With LTA, one can reduce travel expenses and tax benefits. It must be kept in mind that under LTA, only the travel costs are covered, which means the fare incurred over travel that could be air/ water or air. Expenses incurred on sightseeing, accommodation, local commuting etc are not eligible for this exemption.

How frequently may LTA be claimed as a tax deduction?

Only two journeys performed in a block of four calendar years can get exemption as an LTA. At the same time, the block year is decided by the government and different from the financial year. Also, LTA covers only within-country travel costs. The current block year begins in 2022 and extends until 2026. LTA allows individual taxpayers to claim tax exemption under Section 10(5).

Exclusions from LTA

Let's take a look at the exclusions from Leave Travel Allowance.

1. Travelling abroad isn't covered under the LTA exemption

2. The individual must keep proof of travel as it is required for tax auditing purposes.

3. After 1 October 1998, the exemption under Leave Travel Allowance is not available for more than two children.

4. LTA can only be claimed twice in a block of four calendar years.

If management disapproves of the request for LTA reimbursement, the tax deduction is a foregone conclusion.

What if the LTA is not claimed?

If any employee hasn't claimed their LTA, the deductible amount will be regularly taxed. Also, any remaining amount after-tax is credited into the individual's salary.

LTA to Cash Voucher Scheme

Due to the pandemic, the government came up with a leave travel concession (LTC) i.e. a cash voucher scheme. Under LTC, employees can claim a tax deduction under LTC by utilizing the money on the purchase of goods or services rather than submitting travel bills. According to government guidelines, employees will be eligible to claim a tax deduction equivalent to the LTC allowance up to ₹36,000 per person in the family or one-third of the amount spent. It should be noted here that the purchase of goods and services must be with a minimum of 12% GST, while only using digital methods to make payments. If the payment has been made in cash, the employee would not be able to make the tax exemption.

Procedure to Claim Leave Travel Allowance

The procedure to claim LTA is commonly organization specific. Every organization announces the due date within which employees can claim LTA. To claim the LTA, an organization may require employees to submit proof of travel such as tickets, boarding passes, invoices and bills during the journey. However, organizations don't need to collect evidence of travel, invoices and statements. Though it is always advisable for employees to keep copies for their records and submit them in case of requirement.

Conclusion

Getting tax benefits is always exciting. However, it is essential to know organizational policies regarding the Leave Travel Allowance. A basic understanding of LTA will help with tax benefits and cash purchases after the government cash voucher scheme.

Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.

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