Go on Vacation & save Tax

KHYATI DHARAMSI

If you were planning a trip tothe hills this summer, it’s acinch that you will enjoy itmore after reading this

story. For, we shall tell you howyou can reduce your taxableincome even as you have funwith your family. Yes, you can dothis by availing of the leave travelallowance (LTA) that is part ofyour salary. “The amount paidby an employer to an employeefor travelling anywhere in India,along with his family, is exemptfrom tax subject to certain provi-sions,” says Sunil Talati, formerpresident of the Institute of Char-tered Accountants of India.

Read on to know how you canmake the best use of your LTA.

What you are entitled to

You may be entitled to a highLTA, but only the expenses youhave incurred on travelling withyour family within the countrycan be claimed as exemptionunder Section 10(5) of the IncomeTax Act. Expenses on hotelrooms, sightseeing, food, etc,cannot be included. This meansthat you cannot claim exemptionfor the money you spent on yourstay at a five-star hotel.

The family can comprise yourspouse, two children, brothers,sisters and parents, if theyare dependent on you.“You cannot claimfor more than twochildren unless thesecond birth hasresulted in multiplechildren,” sayschartered accountant

Paras Savla.Don’t think you can outsmart

the taxman by taking a circuitousroute to reach your destination.Expenses can only be claimedfor travel by the shortest possibleroute. “Though it’s difficult tocrosscheck the route, the claimamount should reflect this. So,you can go from Tamil Nadu toKerala, but you cannot go toDelhi from Tamil Nadu and thentake a flight to Kerala to claimyour expenses,” says RajeshSrinivasan, leader, globalemployer service, Deloitte India.

The tax exemption is limited tothe fare component, which iseconomy class air fare, first classAC rail fare or first/deluxe classbus fare. However, if there is nopublic transport, you can hire ataxi or rent a car and claim forexpenses equivalent to first classAC rail fare.

While most companies asktheir employees to furnish proofof travel, such as boarding pass-es, tickets and rental receipts,some don’t. Srinivasan says,“The Supreme Court has statedthat the employer does not needto collect bills from his employ-ees as proof to make the allow-ance tax-exempt.” Your employ-er will certify the LTA exemptionin Form 16.

When you can claim

Though you are paid the travelallowance in your salaryevery financial year, it canbe claimed for only twojourneys in a block of fourcalendar years, which are

fixed. “The block of fouryears are considered according

to the Income Tax Act and thecurrent one is from 2010 to 2013,”says Mumbai-based charteredaccountant Mehul Sheth. “So, ifyou are eligible for an annual LTAof `20,000, you can claim exemp-tion up to `40,000 in a block. Youcannot claim exemption of `2lakh even if you have actuallyspent that much,” he says.

You can claim for two journeysin the same year, provided youmake no more LTA exemptionclaims for the rest of the block.“The Act says twice in a block offour years,” says Srinivasan.

If, however, you have not beenable to travel during a block, youcan carry forward the LTAexemption to the first year of thenext block. This means you canclaim for even three journeys.“One can claim for three jour-neys subject to certain condi-tions. It is allowed for the firstyear of the new block, when youhave carried forward exemptionfrom the previous block. So, in

the present situation you canclaim in the first year of blockthat is 2010-2011, for a journey ofprevious block that is 2009. Plusyou can make two more claimsfor this block (2010-2013),” saysSrinivasan.

If both you and your spouse areeligible for LTA, you can claimexemption for separate journeys.What if there are only two jour-neys undertaken by the family ina block? You could consider divid-ing the expenses. “The husbandand wife can split the cost of thejourney and claim them separate-ly. However, there should be noduplication,” says Talati. So, thehusband can book the air ticketsfor one way and the wife can doso for the return journey.

The split can also be deter-mined by the income slab of thehusband and wife. “If the claim isto be made, it is better that theone who has a lower incomedoes so. This is because it willnot make much of a differencefor the person with the highersalary to reduce his taxableincome,” says Srinivasan.

What if you don’t claim LTA?

It’s important to remember thatwhen you are claiming exemp-tion for LTA, it should be for theperiod when you were on leave.After all, you can hardly travel toCoimbatore while sitting inoffice. You can avail of theprivilege or unpaid leave. Typi-cally, the leave is sanctioned forfive to eight days.

“If you do not provide a decla-ration to your employer to claimLTA, it will be added to yoursalary and taxed according to the

relevant income tax rates,” saysSrinivasan. However, if youforget to submit the proof oftravel and your employerdeducts tax on the LTA amount,you can claim exemption in yourincome tax return and you willget a refund.

Maximise the benefit

Getting a higher LTA entitlementcan help reduce your taxableincome. Says Srinivasan: “Itmakes sense for people whotravel to far off places to have abigger travel allowance as part oftheir salary.”

Though LTA can be claimedonly for journeys within India,many tour organisers offer tripswhere they integrate foreignholidays with LTA plans withoutletting you lose out on the taxbenefit. For instance, Air IndiaHolidays offers ‘LTC Bonanza’from Chennai/Bangalore toKashmir with a trip to Dubaiincluded in the package. The 8-night, 9-day tour costs about`1 lakh for a couple.

There are others operatorswho offer a Delhi-Thiruvanan-thapuram-Delhi trip, whichincludes a 3-night stay at eitherSingapore or Malaysia for`52,500 per person, statingclearly that you are entitled to a`40,900 exemption for the airfare to and from Thiruvanan-thapuram.

Be it Kashmir or Kuala Lum-pur, make sure you claim yourtax exemption in this block year.

Jobs & Income

Go on a holidayto save tax

Please send your feedback to

etwealth@indiatimes.com

If you are entitled to leave travel allowance, you can claim it to reduce your tax.Find out when and how to claim it before you catch your next flight.

LTA

The Economic Times Wealth, March 14, 201116

Actual expensesof LTA exemptup to

AirEconomy class fare.

RailFirst class AC fare.

RoadEquivalent to first class

AC rail fare.

Only for the shortest route.

Secure your

house when

on a holiday.

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RAJ