LTA Exemption

Dear Seniors,

I have read the previous posts about LTA. My present query is as follows: Suppose Employee-A is eligible for LTA for FY 2010 - Rs. 28,000; FY 2011 - Rs. 31,000; FY 2012 - Rs. 35,000; and FY 2013 - Rs. 40,000. Employee-A has traveled and incurred Rs. 39,000 in the year 2011. Again, he has traveled and incurred Rs. 52,000 in the year 2013.

Query-1
What is the LTA exemption for travel in 2011 - Is it Rs. 31,000 (highest of 2010 & 2011) OR Rs. 39,000 (actual cost of travel) OR Rs. 59,000 (total eligible of 2010 & 2011)?

Query-2
What is the LTA exemption for the 2nd travel in 2013 - Is it Rs. 40,000 (highest of 2012 & 2013) OR Rs. 52,000 (actual cost of travel) OR Rs. 75,000 (total eligible of 2012 & 2013)?

Request to clarify the above.

Thank you,
Vijaya

There are 2 key steps in the calculation of tax exemption on LTA.

Step 1: Determine the extent of LTA paid to an employee in a tax year for which LTA tax exemption is sought to be claimed. The amount of LTA paid to an employee in a tax year is the maximum extent to which tax exemption can be provided on LTA.

Step 2: Take a look at the travel expenses incurred by the employee and calculate the LTA exemption. The extent of LTA exemption cannot be higher than the actual travel expenses incurred or the actual LTA amount paid (as per the earlier step).

Let me attempt to answer query 1.

1. Extent of LTA paid: Since the travel was undertaken in 2011 (let us assume that 2011 here refers to the tax year 2011-12), the LTA paid is Rs 31,000. I am assuming that the LTA paid in FY 2010 was taxed in FY 2010 itself and hence cannot be considered in FY 2011 for the purpose of tax exemption. The maximum LTA exemption that can be provided is Rs 31,000.

2. The amount incurred towards travel is Rs 39,000. Since the LTA paid is only Rs 31,000, the tax exemption on LTA cannot be higher than Rs 31,000.

Now, can the entire Rs 31,000 be exempted from tax?

The answer to this question depends on the mode of travel and the places visited by the employee on his leave travel. If the employee went from place A to place B and back by air (economy airfare by the national airline), then the whole of travel expenses can be exempt from tax.

If the employee went on leave travel by another mode of travel (train, taxi, ship, etc.), the LTA exemption shall be restricted to the first A/C train fare for the distance traveled by the employee.

The calculation becomes more complex if the employee traveled by more than one mode and went to more than one place. If an employee visits many places, we need to determine the farthest place the employee visited (from the place of travel origin), calculate the shortest distance to the farthest place, and see what the equivalent first A/C train fare is and restrict the exemption to the same.

Calculation of LTA tax exemption is a complex business. What I have outlined is just what the law states. We need to examine the travel details provided by an employee to calculate the exact LTA tax exemption.

The complexity in calculating LTA tax exemption is compounded by the fact that the block year (as stated in the tax law) for the purpose of availing LTA tax exemption is the calendar year while calculation of tax exemption of LTA needs to take into account the LTA amount paid to an employee during a tax year.

There are several issues related to the scrutiny of LTA travel proof, determining tax exemption, etc., which need to be simplified by the authorities. The law in its current form is almost impossible for any payroll manager to comply with.