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Wednesday, October 10, 2012

Know more about LTA or LTC Claims

Most of us do take out time for at least one vacation in a year with our family. While this is good, so many times we just fail to take the tax benefits provided to us by the government. There can be various reasons for not availing tax benefits like these. Either we are afraid of the paper work, or we are too busy otherwise, or we do not realize the importance of saving taxes or it may be just that we are not fully aware of the rules pertaining to Leave Travel Concession (LTC)/Leave Travel Assistance (LTA)

Whatever be the reason, we are the loser. I also found that it confusing for many people when deciding the eligibility to apply for the LTA. Most of them are not aware of the rules and policies related to the LTA. 
Knowledge removes fear !!! 
So, why not equip ourselves with the knowledge that can help us save some money. Remember that a penny saved is a dollar earned, and such savings, if invested wisely, can go a long way in achieving you financial freedom quickly.

So, lets get started with the rules:
  1. Only salaried employees are eligible for LTA claims. You should have taken leave from your company to be eligible for LTA.
  2. LTA is only a tax exemption for the money you actually spend on travel for you and your family. It is NOT the reimbursement of the travel amount.
  3. The amount you want to claim on LTA should be actually spent only on travel. The mode of travel could be Air, Rail or Bus. Any other expenses like food, boarding, lodging etc. can not be claimed as LTA.
  4. LTA can be claimed only for you and your family. However, you must travel with your family to eligible for the LTA. Here family means, spouse and children (including adopted children and stepchildren). Parents, brothers and sisters are also included if they are dependent on you.
  5. If both spouses are getting the LTA benefit in their places of work, they can both claim exemption on LTA from their employers and the benefit for four journeys in one block.They do not have to take the precaution of not travelling twice during the same year.
  6. This travel should be within India. If you travel outside India, you can not claim LTA.
  7. You must submit the proof of the travel. In this case, it will be tickets of flight, rail or bus. If you are traveling taking the car for rental, you must submit the bills from the rental company. Please note that any non-transport component (like driver allowance) is not considered for income tax exemption.
  8. The travel should be on the shortest distance to the destination. For example, if you are traveling to Mumbai, you must choose the shortest route to reach the destination to eligible for the claim. If you are traveling by air, you must choose the economy class of any national career. If you are traveling by train, the maximum allowed is first class (AC I Class).
  9. LTA can be claimed twice in the block of four years. That means you can claim two times in the specified block. This window of 4 year blocks are predefined by the government. These are:
    1. 2002 – 2005
    2. 2006 – 2009
    3. 2010 – 2013
    4. 2014 - 2017 And so on. The current block is 2014 – 2017. 
  10. Note that the year falling under these blocks are Calendar Years (January to December) and not the Financial / Fiscal Year(FY) or the Assessment Year(AY).
  11. You can not claim both the LTA  of one block in the same year. For example, even if you have traveled two times in the year 2011, you are eligible to claim the tax exemption only once. If your spouse is also working, then she can claim another travel. 
  12. There is an option to carry forward at the most "one travel" to the next block window. If you have utilized only one LTA in the current block window, you can use three LTA claim in the next window. But, with restriction that you have to use this LTA of the previous block in the first year of the next block of 4 years.
  13. The maximum eligible amount for LTA is Rs.50,000 for each journey. You can claim tax benefits only on the actual amount spent. If you have not spent the full eligible amount, then the remaining amount is taxable as per the prevailing tax slab. For example, if you have spent Rs.18000 on the journey, then you are eligible to claim tax exemption only on Rs.18000. The remaining Rs.32000 will be taxable. In the same way, if you have spent more than Rs.50000, the maximum eligibility is Rs.50000.
So, do plan out the next vacation but do not forget to take the tax benefits available under the governments LTA / LTC policy.

Small savings like these can help you in the long run. These simple habit changes help you transform and can definitely help you reach your goal faster.

Like the article? 
Do not hesitate to share. It can make a positive impact on someone's life.

The book "From the Rat Race to Financial Freedom" has many such investment concepts explained in a very simple and uncomplicated manner, especially in the Indian context.


Manoj Arora
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