Modern employees prioritise more than just competitive salaries—they increasingly seek comprehensive benefits that support work-life balance, financial well-being, and meaningful family engagement. One such benefit offered by many Indian employers is LTA. The full form of LTA is Leave Travel Allowance.
For HR professionals, LTA presents both an opportunity and a challenge: it helps reduce employees' taxable income, yet requires precise understanding and execution to remain compliant with income tax laws.
This guide will equip you with the essentials, whether you're setting up LTA policies or helping employees navigate their claims.
Leave Travel Allowance (LTA) is an allowance included in an employee’s salary package to cover domestic travel expenses incurred during official leave periods.
Purpose: To support employees in travelling with their families during leave, and encourage periodic rejuvenation.
Tax Benefit: LTA enjoys tax exemption under Section 10(5) of the Income Tax Act, making it a valuable part of tax planning and overall compensation.
It is a common component of Indian employee Cost to Company (CTC) structures, and its proper use can result in substantial tax savings.
LTA isn’t automatically available to everyone; employers and employees must meet certain eligibility conditions.
Key Eligibility Criteria:
Type of Travel: Only domestic travel within India qualifies. International travel is not covered under LTA.
Persons Covered: LTA can be claimed for travel expenses incurred by the employee and:
Spouse
Up to two children (only applicable to children born on or after 1 October 1998)
Dependent parents
Dependent siblings
Leave Requirement: The journey must be undertaken during an approved leave period (earned or privileged leave).
Employment Basis: Only salaried employees are eligible to claim LTA exemptions.
Proof of Travel: Travel tickets, invoices, and boarding passes are required to claim the exemption.
LTA offers a tax exemption only if specific conditions are met. The benefit is governed by Section 10(5) of the Income Tax Act, along with Rule 2B of the Income Tax Rules.
What is Exempt?
Travel Fare Only: The exemption applies only to actual travel costs—this includes railway fare, bus fare, or air tickets.
Shortest Route Consideration: The fare must be calculated for the shortest route to the destination.
What is Not Exempt?
Accommodation costs
Meals or sightseeing expenses
Taxi or local transportation
Any expense not directly related to travel
Note: If no journey is undertaken, or if proper proof is not provided, the LTA component becomes fully taxable.
The amount that can be claimed under Leave Travel Allowance (LTA) is not fixed—it depends on actual travel expenses incurred and the limits set by an employee's salary structure and tax rules. Here's how it works:
1. Actual Travel Costs Incurred
The LTA claim is limited to the travel fare actually spent by the employee and family members for domestic travel. It covers only the cost of travel, not hotel stays, food, or local transport. The eligible fare depends on the mode of travel:
Air travel: Economy class fare of the national carrier (Air India) by the shortest route.
Rail travel: AC First Class fare by the shortest route for destinations connected by rail.
Other modes: If the place is not connected by air or rail, a public transport fare equivalent to an AC First Class rail fare is allowed.
2. Salary Structure and LTA Component
The maximum amount that can be claimed is also limited to the LTA component defined in your salary. For instance, if your salary has ₹40,000 allotted annually as LTA, you cannot claim more than that, even if your travel cost is higher.
3. Tax Exemption Limit
The Income Tax Act allows tax exemption only on actual travel fares as per the above rules. Any claim beyond that, such as for accommodation or food, is not exempt and will be taxed.
4. Frequency of Claim
You are allowed to claim LTA tax exemption for two journeys within a block of four calendar years—the current block being 2022–2025. If only one journey is claimed during this period, the unclaimed allowance can be carried forward to the next block, but only for the first year of that subsequent block.
Let’s understand this structure in detail below to avoid lapses and missed opportunities for tax savings.
The Income Tax Department defines LTA claims in terms of block years, not financial years. This distinction is essential for HR managers and payroll teams.
Current Block: 2022–2025
Employees can claim LTA twice in a block of four years.
The two claims must be for separate journeys.
Carry Forward Rule:
If an employee misses one claim in a block, they can carry it forward and use it in the first calendar year of the next block. For example:
If one journey was missed in the 2018–2021 block, the unclaimed exemption can be availed in 2022, provided the journey occurs in that year.
As you navigate the rules and block year provisions, it’s equally important to understand how the tax regime you choose can affect your eligibility, especially with the introduction of the new tax regime.
Since the new income tax regime under Section 115BAC has been introduced, employees can now choose between the old regime (with exemptions/deductions) and the new regime (lower tax rates but no exemptions).
Aspect | Old Tax Regime | New Tax Regime (Section 115BAC) |
LTA Tax Exemption | Available under Section 10(5) | Not available |
Proof Required for Claim | Yes – travel bills/tickets must be submitted | Not applicable |
Applicable for Domestic Travel Only | Yes | Not applicable |
Claim Frequency | Two journeys per block of four calendar years | Not applicable |
Carry Forward Provision | One unclaimed journey can be carried to the next block year | Not applicable |
Best Suited For | Employees who claim exemptions like HRA, LTA, etc. | Employees with fewer exemptions and higher standard income |
HR Advisory: Guide employees during annual tax declarations to choose the regime that best suits their situation, especially if LTA is a significant component of their CTC.
From an employer's standpoint, enabling a smooth Leave Travel Allowance (LTA) claim process is crucial for both compliance and employee satisfaction. A clearly defined procedure ensures transparency, reduces errors, and helps teams adhere to tax-saving deadlines.
Here’s a standard step-by-step process HR and payroll managers can follow to streamline LTA claims:
Policy Communication
Communicate the company's LTA policy to employees at the start of the financial year. This should include eligibility criteria, permissible travel modes, claim limits, and documentation requirements.Travel Planning and Leave Application
Employees should be encouraged to plan travel and apply for leave accordingly. LTA can only be claimed if actual travel is undertaken and official leave is recorded.Travel Completion and Document Collection
After travel, employees must collect all necessary travel proofs, such as tickets, boarding passes, and invoices. As per Income Tax guidelines, only travel-related expenses (not food or hotel bills) are eligible for exemption.Submission of Claim Form and Proofs
Employees should fill out the designated LTA claim form and attach supporting documents. HR should specify submission deadlines to ensure timely processing before payroll cut-offs.Verification by HR/Finance
The HR or finance team must verify the authenticity and compliance of submitted documents. Ineligible expenses or missing documentation should be communicated to the employee promptly.Payroll Adjustment and Tax Calculation
Once verified, the exempted LTA amount is factored into the employee’s payroll, reducing taxable income accordingly. It’s important to ensure this is done before year-end tax filings.Record-Keeping for Audit and Compliance
Maintain records of all LTA claims and supporting proofs for audit purposes, typically for at least 6 years as per standard compliance norms.
By formalising and digitising this process (preferably via HRMS tools), employers can make LTA claims smoother and ensure adherence to statutory norms—while offering a valuable, tax-saving benefit to their workforce.
As an HR professional, managing LTA efficiently means ensuring:
Clear policy documentation
Timely communication of block years and deadlines
A user-friendly claim process (ideally digital)
Guidance on old vs. new tax regime implications
Regular training or FAQs to help employees maximise the benefit
Leave Travel Allowance is a powerful yet underutilised tool in the Indian HR compensation framework. While the tax exemption makes it attractive, understanding the applicable conditions and managing claims systematically is essential for compliance and employee satisfaction.
By building awareness, automating workflows, and educating employees about eligibility, HR professionals can transform LTA from an administrative chore into a valued benefit.
Simplify LTA compliance from end to end with Craze—manage exemptions, documentation, block year rules, and tax declarations seamlessly. Power your HR team with clarity, control, and compliance. Book a demo with Craze today.
1. Can Leave Travel Allowance (LTA) be claimed for international travel?
No, LTA exemption is only available for domestic travel within India. Any international travel does not qualify for tax exemption under Section 10(5).
2. Is it necessary to submit travel bills for claiming LTA?
Yes, employees must submit valid travel proofs such as tickets, boarding passes, or travel invoices to claim LTA. Without documentation, the claim becomes taxable.
3. Can both husband and wife claim LTA separately?
Yes, if both spouses are salaried and eligible for LTA through their respective employers, they can claim LTA separately, but for different journeys and not for the same trip.
4. What happens if I don’t use my LTA in a block year?
You can carry forward one unclaimed journey to the first calendar year of the next block. However, if unused even in that year, the benefit lapses.
5. Is LTA applicable under the new tax regime?
No. If you opt for the new tax regime under Section 115BAC, LTA (along with most other exemptions) becomes ineligible for tax benefits.
