It is only available in a block of two years and current period is calendar year 2014-17. Some of the ways how you can claim your LTA amount for which tax break are: Air travel. If you are travelling on the economy class fare of the national carrier by the shortest route then you are eligible to claim the LTA. Multi-destination journey. A block year is different from a financial year and is decided by the Government for LTA exemption purposes. It comprises of 4 years each. The very first 4-year block commenced from 1986. List of block years are 1986-1989, 1990-93, 1994-97, 1998-2001, 2002-05, 2006-09, 2010-13 and so on. Any individual entitled to take the benefits of LTA can take it for traveling in India only. For tax auditing purpose, it is recommended to keep the record of travel in the form of travel proof. The Leave Travel Allowance exemption is available for two children only who are born after October 1, 1998.
Home » IndiaLTA is leave travel allowance meant for making tax exempt holiday once in period of two years with or without family. Air travel, train ticket cost (economy or first class AC), hotel and taxi bills within India (no abroad) are allowed. Full LTA that is part of CTC can be claimed with receipts.
LTA is the short form for Leave Travel Allowance. It is part of your CTC and can be used to make your travel costs tax-free legally in the Indian Taxation system.
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Although it is good that a salaried person is exempted from paying tax on the amount, he spends on travel expenses of his family, he can only do so twice in a block of 4 years.
There are other restrictions too with respect to claiming LTA and we discuss them here.
LTA Terms & Conditions
#Travel Expenses
Only travel fare i.e. either by Air, train or bus qualifies for exemption.
No food, hotel, sightseeing, etc. expenses are allowed for a claim in LTA.
You can hire a taxi if there is no train, air or bus travel option available to your destination.
#Travel outside India
Thinking of a vacation in Bangkok? Forget LTA!
LTA tax exemption is only allowed for travel expenses to a destination within India.
FYI, Andaman and Nicobar islands are part of India.
#Family
You can take your dependent parents, dependent siblings, spouse, and two children.
All their travel expenses will be exempted.
#Luxury Travel
Tax exemption can only be claimed for economy class airfare, first-class AC rail fare, or first/ deluxe class bus fare.
#LTA tax exemption Limit
The full amount as specified in your CTC letter or given by your employer is exempt if you can provide the bills for it.
Note that only Travel expenses can be claimed.
#Carry forward your unspent LTA
If you have not claimed your LTA in the first year, the amount is accumulated in your kitty.
Hence, you can claim a higher amount if you travel next year.
Year 1 amount + year 2 amount is available for the LTA tax exemption claim in year 2.
#Double Dip LTA
If both husband and wife are receiving LTA from their respective employers, then they both can claim LTA in the same year but for DIFFERENT journey’s.
One journey on which both husband and wife traveled cannot be claimed twice separately, even though they work in different companies.
There is no mechanism to verify this but, it is illegal to do so.
If caught by the income tax officer, you can be penalized.
LTA Bouquet of Benefits
Some companies have the option of specifying your own LTA amount in the various kitty of allowances as per your preferences. It is generally called Bouquet Of Benefits (BoB). In this case, they fix the total amount of BoB and leave the various allowance figures for you to decide.
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This is generally done to give you a free hand on what you think is the best for you to save tax.
For e.g. A common BoB could be something like this:
In this example, there are various tax saving options via different kinds of allowances including LTA. If you look at the structure carefully, there is an allowance called Personal allowance which is FULLY taxed.
Now, the point I am trying to make here is that all other allowance (except personal allow. – which is FULLY taxed), have a maximum limit for tax exemption. Hence, you can use LTA for your advantage and declare it as the maximum value after consuming the maximum amount of other expenses and then reducing personal allowance.
You may argue that you may NOT travel and hence would not be able to claim any tax benefit.
I would say that it won’t make any difference even if you declare it and not claim it. But if you do NOT declare it, you are anyway going to be taxed on personal allowance amount and cannot claim in case you do travel!
This is also the reason behind saying that consume all other tax-saving allowances to their maximum before increasing LTA.
So, I would say that this should be the ideal BoB for this example:
I hope this will clarify lot of queries about LTA in your mind.
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Every business, small or large, has to process and execute payroll. While performing payroll calculations, the concerned team follows a specific set of rules. These rules govern salary payments, tax deductions, PF contributions, and many more.
Since there is a lack of specific rulebook for payroll processing, some laws are wrongly interpreted by the businesses. Unawareness of changes to a particular law or regulation adds up to it.
The misinterpretation of law over the years has given rise to quite a few myths about payroll, making the entire process seem intimidating.
Let’s decode the facts about payroll in detail, and then execute payroll accurately.
Myth – PF is calculated only on basic salary
Many employers consider basic salary alone for PF calculations. Since the Supreme Court ruling on PF wages took place on 28th of February 2019, this practice does not hold good anymore.
Fact: PF should be calculated on employee’s fixed salary
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The Supreme Court ruling held that the allowances paid by an employer to its employees will be included as a part of basic wages and will be subject to PF contributions.
But, here are some exceptions.
- Variable allowance or allowances that are linked to any incentive for production, resulting in greater output by an employee
- Allowances paid across the board to all employees of a particular category
- Allowances that are paid especially to those who availed the opportunity
- Allowances that formed a part of basic wage and are covered as allowances to avoid deduction and contribution to PF
HRA is not paid to many employees/workers around the country. Also, sometimes it is paid to some employees and not to others by the same employer. So, it stands excluded from PF contributions. Similarly, overtime allowance/bonus/incentives are provided by all employers but not earned by all employees and hence stands excluded too.
Therefore, PF contribution has to be calculated at the rate of 12% of an employee’s fixed wages, including basic pay, special allowance, but excluding HRA, overtime allowance, etc.
Myth – Employees bear PF admin charges
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Some employers transfer the cost of managing a PF to employees by making it a part of the CTC. However, this practice is wrong.
Fact – PF charges should be borne by the employer only
PF admin charges are the charges allocated outside of the employer’s PF contribution. The employer entirely bears these charges. So, if an employer contributes 12% of the fixed wages (excluding HRA), 0.5% admin charges will be added to the 12%. This means the total cost to the employer would be 12.5%.
This additional charge should be treated as an expense in the profit & loss of the employer’s balance sheet. The 12% employee’s contribution will be deducted entirely for PF, and no charges will be debited from the employee’s salary.
Myth – LTA deduction can be claimed every year
Employees submit LTA bills to their present employers and claim tax benefits every year. This practice is unethical.
Fact – LTA deduction should be claimed only twice in a block of 4 years
Employees tend to switch and do not inform their new employers about LTA exemptions claimed previously.
According to the Income Tax laws, an employee can claim LTA exemption for only 2 domestic travels within a block of 4 calendar years. The exemption is available only on the travel cost incurred or the LTA received by the employee, whichever is lower.
There is no way for employers to collect information about employees’ previous LTA exemption claims. But, this tax-saving approach might invite trouble for employees.
If an employee has claimed LTA exemption twice in the block of 4 calendar years, they should inform their current employer to avoid notice from the IT department.
LTA exemption is not allowed under the new tax regime introduced in Budget 2020.
Myth – CTC including medical & transport allowance is not outdated
Many employers include medical and transport allowance in the CTC structure. However, this practice is redundant.
Fact – Including medical & transport allowance is irrelevant
In the Union Budget 2018, the Finance Minister introduced a standard deduction of Rs 40,000. This deduction replaced medical and transport allowance tax benefits.
Before 2018, these allowances were a part of the CTC. The employees claimed tax benefit on the medical allowance of Rs 15,000 and a transport allowance Rs 19,200.
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Since exemptions were replaced with a standard deduction, making medical and transport allowance a part of CTC is unnecessary. Employers can withdraw these allowances and park the funds as special allowance.
Also, the threshold of Rs 40,000 was increased to Rs 50,000 in the Union Budget 2020.
Myth – Spreadsheet-based payroll is simpler and error-free
Businesses start payroll processing on spreadsheets because there are no initial investments. They try to save their budgets by using manual payroll methods. However, this practice can take a toll in future.
Fact: Spreadsheets are prone to errors
The spreadsheet-based payroll calculations are lengthy and time-consuming. Here are some limitations to this method.
- High chances of mathematical and clerical errors as details are entered manually
- Odds of duplications and omission of entries rises
- Difficult to monitor and update spreadsheets with compliance changes
- Complications in adding and removing employees
- Excessive hours spend by concerned teams on payroll processing every month
- Increase in costs as businesses need to hire skilled folks for payroll calculations
However, more than half of Indian businesses still rely on paper or spreadsheet-based payroll management for payroll processing.
RazorpayX Payroll – Execute your payroll accurately
With constantly changing regulations and the drawbacks of using traditional methods, effective payroll software is the need of the hour.
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At RazorpayX Payroll, we have decoded what it means to have an effective payroll system. It processes and executes payroll seamlessly in a single click. It not only calculates salary or compliance payments but also executes payroll.
Let’s see how RazorpayX Payroll combats all the myths about payroll and makes payroll execution – A Cakewalk!
- The software computes employees’ PF contributions at 12% of the fixed wages that includes basic salary, special allowances and excludes HRA
- It includes PF admin charges as a part of employers’ PF contributions and doesn’t deduct it from employees’ salary
- Employers can automatically bifurcate CTC and exclude medical & health insurance components
- Eliminates the usage of spreadsheets by automating the entire payroll process including compliance payments and contractor payments
Moreover, RazorpayX Payroll provides an intuitive and easy to use interface for businesses and their employees. It also provides transparency to employees by making all employee-related documents available to them at all times.
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Also, it does away with duplication or omission errors involved in traditional payroll methods and brings down the processing time days to minutes. Since RazorpayX Payroll fully complies with regulations and laws, businesses do not have to worry about decoding and monitoring compliance changes.