All you need to know about tax deduction on LTA

LTA is short form for leave travel allowance. It generally forms part of cost to company and can be used to claim tax rebates if you like to travel. Although it is good that salaried person is exempted from paying tax on the amount s/he spends on travel expenses of her/his family, s/he can only do so twice in a block of four years.

LTA terms and conditions for tax exemption:

Term: Travel expenses

Meaning: Only travel fare, that is, either by air, train or bus qualifies for exemption. No food, hotel, sightseeing expenses are allowed for claim in LTA.

You can hire a taxi if there is no train, air or bus travel option available to your destination.

Term: Keep yourself within India

Meaning: 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.

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Courtesy: Am22Tech.com

Term: Family

Meaning: You can take you dependent parents, dependent siblings, spouse and two children. All their travel expenses will be exempted.

Term: Luxury travel

Meaning: Tax exemption can only be claimed for economy class airfare, first class AC rail fare or first/deluxe class bus fare.

Term: LTA tax exemption limit?

Meaning: 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.

Term: Carry forward your unspent LTA

Meaning: If you have not claimed your LTA in the first year, the amount is accumulated in your kitty. Hence, you can claim for a higher amount if you travel in next year. (Year 1 amount + Year 2 amount) is available for LTA tax exemption claim in year 2.

Term: Double dip LTA

Meaning: If both husband and wife are receiving LTA from their respective employer's, then they both can claim LTA in the same year but for DIFFERENT journeys. One journey on which both husband and wife travelled cannot be claimed twice separately even though they work in different companies.

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There is no mechanism to verify this but it is illegal to do so. If caught by income tax officer, you can be penalised.

Some companies have the option of specifying your own LTA amount in various kitties 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 allowances' figures for you to decide.

This is generally done to give you a free hand on what you think is the best for you to save tax.

For example: A common BoB could be something like this:

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In the previous example, there is various tax saving options via different kind 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 maximum value after consuming 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 wouldn'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.

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So, I would say that this should be the ideal BoB for this example: