How to make merry and claim tax benefits

Travelling on holiday is not only good for your health and fun but can also help you claim real tax benefits

The whole object of travel is not to set foot on foreign land; it is at last to set foot on one's own country as a foreign land. ~G.K. Chesterton

G K Chesterton’s quote shows the importance and enjoyment of exploring your own country. The government also wants to promote inland tourism and has therefore provided for tax benefits in respect of leave travel allowance generally referred to as LTA in common parlance.

Please note that the tax benefits in respect of LTA are available only to people who are in employment. Those who are self-employed can’t claim LTA.

In case you are employed you can claim LTA benefit when you are going on leave during your current employment. LTA benefits can also be claimed when you travel to any place after your retirement from the services or on termination of your services. This benefit, however, needs to be claimed just a year after you retire or are terminated.

The term retirement for the purpose of LTA benefits means leaving one employment and not necessarily retiring on reaching the age of compulsory retirement, at say, 58 or 60 years. So LTA benefit on retirement can be claimed every time you leave one employment and move anywhere in India either on holidays or to take up another employment. 

The author is chief financial officer, Apnapaisa

Apnapaisa is a price comparison engine that allows consumers in India the ability to compare the EMI, interest rates and other fees for home loans, car loans, personal loans, business loans, credit cards, compare online quotes and features of life insurance, health insurance, car insurance, travel insurance and other general insurance policies in India.

For whom you can spend the money

The benefit of LTA can only be claimed if the employee travels with or without her/his family. In case your family travels without you, no LTA benefit can be claimed. For availing LTA benefits you should officially be on leave from your office. So in case you take your spouse/ child with you during your business trip you cannot claim LTA benefit as you are not on leave but on an official visit.

You can claim the LTA benefit for your spouse, children whether dependent on you or not.

You can also claim LTA for your parents, brothers and sisters who are wholly dependent on you. So you can claim LTA for your earning children and spouse but for parents, brother and sisters, they need to be financially dependent on you.

One interesting thing to note about LTA benefit is that you can claim this benefit only for two children but for brothers and sisters there is no such restriction.

How frequently you can claim this exemption

You can claim the LTA exemption twice in the block of four calendar years. This block is not calculated with reference to commencement of your employment but is predefined by the law. The current block has begun from January 1, 2010 and will end on December 31, 2013.

The next block will begin from 2014 to 2017, and so on.

One important point to note here is that you cannot claim LTA for more than two times in the defined block of four years. In case you and your spouse both are working, your family can claim this benefit four times in a period of four years. The only restriction is that you cannot claim LTA exemption for the same journey.

Carry forward of LTA / LTC benefits

What if you cannot fully claim LTA / LTC (leave travel concession) exemption for some reason during the block 2010-2013? It can be carried forward to the first year of the next block of 4 years. Thus, any LTA benefit which you are not able to claim by December 31, 2013, can be carried forward to the calendar year 2014 without affecting your right to claim two LTA exemptions in the same block. 

The amount you can claim as exemption

The tax benefit is available only in respect of cost of transportation incurred by you on travelling within India. It is not available for expenses of stay in hotel or local conveyance for sight seeing etc. In case you are going on a foreign trip, you can claim the expense of travel from your place to the point of departure from India for undertaking the foreign travel and back. The exemption is restricted to actual expenses incurred by you in undertaking the journey from the starting point to farthest destination.

However there is a cap on maximum amount you can claim in respect of LTA exemption.

In case of air travel, the maximum amount available is the economy fare charged by the national carrier for the shortest route in respect of journey. In respect of journey not undertaken by air, the maximum amount of LTA claim will be restricted to air conditioned first class fare or first class or deluxe class fare for distance between two places of destination.

The exemption is available for the farthest place by shortest route when a circular journey is undertaken.

Documents to be preserved

After the recent Supreme Court decision in L&T Limited, your employer may not verify and collect the proof of the expenses in respect of LTA. While granting you the LTA benefit you need to preserve the tickets to claim the LTA benefit in case your assessing officer wants to verify the same.

So travelling on holiday not is only good for your health but can also result into some real tax benefits.