How to design Leave Travel Assistance- LTA policy of your company?

One of the important component while designing a compensation policy is LTA i.e. Leave Travel Assistance. This is a tax free component (subject to some terms and conditions). Check out Must to know about designing CTC-Cost to Company of an employee.

What is LTA (Leave Travel Assistance)?

Leave travel assistance (LTA) is generally paid as a part of the remuneration of employees. With some proper planning, an employee can save some tax through this mode.

The LTA amount is received from the employer towards a journey within India. LTA is eligible for deduction under the Income Tax Act subject to compliance with specified conditions. Section 10 of the Income Tax Act specifies that in the case of an individual, the amount of any travel concession or assistance received by him is exempt.

What is the current block of calendar years?

The current block is calendar years (January to December) 2006 to 2009. Current block is calendar years 2010-2013 and next block is calendar years of 2014-2017. Where such travel concession or assistance is not availed of by the individual during any such block of four calendar years, it may be carried forward. Such amount of travel concession or assistance can be availed of by the individual during the first calendar year of the immediately succeeding block of four calendar years, and is eligible for exemption.

1. 1986-1989
2. 1990-1993
3. 1994-1997
4. 1998-2001
5. 2002-2005
6. 2006-2009
7. 2010-2013
8. 2014-2017

For which expenses I can claim tax benefit?

If you are thinking that you will be able to claim reimbursement for your complete travel expense then you are wrong. LTA can be reimbursed only for actual fare. Tax benefit is also for actual fare only. Hotel, food, sight seeing, local conveyance etc are not allowed. Also note that you will get tax exemption on lowest of LTA paid by employer and bill submitted for travel during leave. For example if my LTA eligibility is Rs 10000/- and employee spends Rs 5000 in travel and submits bills of same then only Rs 5000/- will be non taxable. Rest Rs 5000/- will be taxable income.

What is the definition of family for LTA claim?

For the purposes of this exemption, 'family' means the spouse and children of the individual, and parents, brothers and sisters who are mainly dependent on the individual.

What are the things, I need to keep in mind while selecting mode of travel?

In case the journey is by air, an amount not exceeding the economy fare of the national carrier by the shortest route to the place of destination is taken. In case the place of origin of journey and destination are connected by rail, and the journey is by any other 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 is taken. Where the place of origin of journey and destination are not connected by rail, the amount eligible for exemption is - where a recognized public transport system exists, an amount not exceeding the first class or deluxe class fare, on such transport, by the shortest route to the destination, and 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.

The exemption is available for a maximum of two children of an individual. The journey should be in India only. The exemption is available for the farthest place by shortest route when a circular journey is undertaken.

LEAVE TRAVEL ASSISTANCE POLICY

Below is the draft of LTA- Leave Travel Assistance Policy which you can use and customized for your organization.

OBJECTIVE: 

With a view to enable employees to take time off from their work and to enjoy a holiday with their family, the company has provided a policy for reimbursing the travel expenses incurred by the employee along with his/her family members.

SCOPE:

This policy is applicable to eligible employees of the company.

DATE OF COMMENCEMENT:

This policy will come into effect from <<Date of Effective>>.

ELIGIBILITY:

This policy is applicable to permanent employees who have opted for LTA as part of their salary and their families.

The word “family” shall include, (i) spouse and children* (ii) dependent parents and (iii) brothers and sisters who are wholly dependent on the employee.

* Exemption from tax is available to only two children of an individual after 1st October, 98. However, this restriction does not apply in respect of children born before 1st October, 98 and also in respect of multiple births after first child.

Employees can avail the option of combining LTA for two years in a block of four years (for eg-2002-05, 2006-2009,2010-2013,2014-2017 etc.) and take them together. In case the employee avails LTA every year, the LTA would be subjected to tax as per Income Tax rules and regulations.

POLICY                                                                

                                                                         
                                                                         
LTA is applicable when the employee is proceeding on leave to any place in India.

The LTA shall be the amount actually incurred on undertaking such travel subject to the following conditions, namely:

• Where the journey is performed by air, an amount not exceeding the air economy fare of the national carrier by the shortest route to the place of destination.
• Where places of origin of journey and destination are connected by rail and the journey is performed 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.
• Where the places of origin of journey and destination or part thereof are not connected by rail the amount exemption for shall be: 
• Where a recognized 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. 
• Where no recognized public transport system exists, an amount equivalent to the air-conditioned first class fare, for the distance of the journey by the shortest route, as if the journey has been performed by rail. 

PROCEDURE FOR AVAILING LTA                                            

An employee availing LTA shall submit his/her request for leave to the sanctioning authority at least 15 days in advance. Sanction of leave should not be assumed for LTA.  LTA will be payable only when an employee actually proceeds on leave for a minimum period of 5 working days sanctioned in advance as per the leave rules in force. When the LTA leave commences at the end of the year and ends in the New Year, the LTA will be treated as it is availed for the year in which the leave commenced. The employee shall submit the claim form along with supporting tickets within one week on resuming duty from LTA. In case an employee fails to submit the declaration of travel as required, the LTA claim shall be liable to income tax which will be deducted from salary, and responsibility of satisfying Company/IT authorities rest with the employee concerned, regarding exemption of the same for I T purposes.

In case an employee is not able to avail leave after getting sanction for LTA due to work exigencies, his/her eligible family members will be allowed to take the advantage of  the policy. However, the LTA amount received by the employee will be liable to income tax and the same will be deducted from salary at source.

 LTA payment will be considered as per prevalent IT regulations subject to employee furnishing necessary information/proof.

QUANTUM OF BENEFIT                                                    

                                                                         
As per terms of appointment letter.                                                                    
                                                                         
The company reserves the right to amend/withdraw the policy at anytime without assigning any reason whatsoever. The utility and   interpretation of the policy will be at the sole discretion of the Management            

CLAIM FORMAT

You can approach HR department for LTA claim related formats.

Please download LTA claim related format from post of HR SUCCESS FORUM Post i.e. Download LTA Request and Claim Formats"

Still if you have some more queries visit FAQ of Leave Travel Assistance.

To ask questions regarding LTA- Leave Travel Allowance, post your queries on HR SUCCESS TALK FORUM and let HR professionals help you.


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