Can I Carry Forward LTA for Tax Benefits and How Do PL Rules Work for New Joinees?

Had a query on LTA.

In my organization, LTA forms part of CTC, which is paid annually. LTA is tax-exempt once in two years. Can one not claim LTA in a year, carry it forward to the next year, and get tax exemption on the entire amount? For example, my LTA is 10,000/-. I do not claim it in 2006. Carry it forward to 2007. In 2007, I claim tax benefit over the entire 20,000 (10,000/- each in 2006 & 2007). If I provide travel bills for the entire 20,000/-, will it be tax-exempt? Can you provide me with some act that will help me understand the LTA rules. If it is so, would it not be easy for an employee to claim LTA two times in four years and avail tax exemption on the whole amount.

Also wanted to know about the PL rules for a new joinee. Is PL accumulated on joining and then availed to him on confirmation? How is this accumulation done and when can it be used the PL? How much has to be carried forward to the next year and how many have to be encashed.

Raga:-P

Hi

Let me present FAQ on LTA which may solve your issues wrt to LTA.

1. On what basis can I claim LTA?
If you fulfill two criteria, you can do so:
i. You should have taken leave from your company
ii. You should actually travel
You can either travel alone or with your family. However, if your family travels without you, no LTA can be claimed.

2. How often can I claim LTA?
Twice in the block of four calendar years.
This block is not calculated with the start of your employment. The government defines these blocks.
Presently the block is 2002-2005. Since it is the calendar year and not the financial year, it will be from January 1, 2002 to December 31, 2005.

3. What if I fail to avail of it?
In case you fail to do so, there is a carry over option.
Let's say that in the block of four years, you never did claim any LTA.
You can do so in the first year of the next block of four years.

4. What is the proof of travel to avail of LTA?
According to rule 2B, you can produce an air, rail or any public transport ticket.
You can even submit the bills issued by the car rental company if you rent a vehicle.
However, the travel is applicable anywhere in India and not abroad. So an international air ticket will not hold.

5. Is LTA taxed?
You can receive LTA as either reimbursement or allowance.

Reimbursement
In case of LTA as reimbursement, it is not taxable.
Let's say your company offers an LTA of Rs 50,000. For proof of travel, you produce an air ticket of Rs 10,000.
In such a case, you can claim only Rs 10,000 as LTA and it will be exempt from tax.

Allowance
If you do not submit any proof of travel, you will get your LTA but will have to pay tax on it.

If you produce proof of travel, it will not be taxable to the extent your proof of travel is covered.

Let's say you are entitled to Rs 50,000 as LTA as part of your salary. Since you produced proof of travel as Rs 10,000, you will not be taxed on this amount.

However you will be taxed on the net Rs 40,000 as per your income tax slab rate.

LTA is not a fringe benefit as the latter are benefits that are usually enjoyed collectively by the employees and cannot be attributed to individual employees.

6. Can both spouses claim LTA?
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.

Moreover, they can take the same family members or different ones as long as they stick to the definition of the members for this purpose.

Family includes spouse, children as well as dependent parents, brothers and sisters. In respect of children born on or after October 1, 1998, the exemption will be restricted only to two surviving children unless the birth after one child has resulted in multiple births (twins or triplets).

7. If I and my wife travel this year, can we both claim LTA simultaneously?

No. You cannot claim LTA twice for the same journey. If both of you take a holiday together and you claim LTA, she cannot.

8. If I am entitled to a particular amount as LTA, but my expenses are higher, can I claim more?

Say in the year 2005-06, you receive on Rs 8,000 as LTA, but spend Rs 50,000 on travel. You can claim exemption only to the tune of Rs 8,000.

Coming to your query – PL : It is provided to the employee on the confirmation only and basis of PL can be decided by the company based on the Industry practices and Shop & Establishment Act applicable as per your state.

Regards,

Rajat

Dear Rajat,

Thank you for your reply. However, my query still remains.

In my organization, LTA forms a part of the CTC. LTA is paid annually in the month of March every year even if the bills are not provided. Employees' LTA is tax-exempt twice in a block of four years. However, my new Finance and Accounts GM was mentioning that he should be given the option of claiming LTA once in two years i.e., in the first year, he will not claim LTA, and in the second year, he will claim LTA for the current year and the previous year, and the combined amount is to be paid in the second year. He will produce bills for the entire amount, and the LTA amount will not be taxable.

If this can be allowed, what is the purpose of the act? Everybody can avoid tax by claiming only once in 2 years and get tax exemption on the entire amount (of both years) fully by providing bills. I believe there is a loophole in the tax laws as there is nothing mentioned in the Tax Act about this. The rule pertaining to tax on LTA is interpreted as per the reader's convenience.

I would appreciate if there is a tax expert in the group to give me proper guidance with case laws if possible.

Rajat, I thank you once again for the prompt reply.

Raga:-P