LTA Limit for Top Management: Is One Month's Basic Realistic or Should We Adjust?

Seeking Advice on LTA Limit for Top Management

I am handling Compensation & Benefits for my organization. I want to seek advice from you all regarding the LTA limit. What I know is the general trend is to give one month's basic salary as LTA. However, my concern is for top management. If they are entitled to one month's basic, how realistic is it for them to claim it as per IT rules? They will claim it once in 2 years. For example, if they are entitled to 1 lakh per annum, is it realistic for them to claim 2 lakhs as LTA? Should we stick with one month's basic or lower the amount? What is considered good practice? I am looking forward to hearing your views and learning about what practices are being followed in your organization.

To the best of my knowledge, there is no upper limit on LTA that a company can designate or disburse. However, as per the IT rules:

1. An employee can claim LTA for self and dependent family members once in two years with the necessary supporting documents, and the same will be non-taxable.

2. An employee and their family will have to travel within the country only.

3. The employee and their dependent family members can choose to travel by economy class.

Anything over and above the supported amount would be considered as taxable income.

Regards,
HRP

As per my knowledge, there is no limit for LTA. According to the IT Rules, an employee can avail of the LTA benefit for self and dependents of his family members on two journeys in four financial years, subject to actual expenses on economy class against subsequent supporting documents.

Thanks & Regards,

Harish Kumar K. S.

[Phone Number Removed For Privacy Reasons]

LTA Limit and Tax Implications

The minimum limit for LTA is 8.33% of the Basic Salary of an employee per month, and it will be calculated for the entire period. There is no maximum limit defined regarding this. There is a block period of 4 years, and any employee can claim LTA a maximum of two times within this block period. If an employee claims more than two times, it will be taxable, provided that the employee falls under the tax limit.

To claim the LTA, the employee needs to produce journey proof as per travel. An employee can claim LTA without any supporting documents, but it will be taxable.

For more information, please feel free to contact me.

Regards,
Rakesh Kashyap

There is no upper limit for giving perquisites like LTA to an employee. You can even provide Rs 5.0 lakhs as LTA. However, as per IT rules, only Rs 15,000/- is allowed for exemption under the IT Act. Anything above this amount will be taxable. There is a block period of 4 years, and an employee can claim LTA a maximum of two times within this period. I recommend checking with your taxation department, which your organization might have already opted for, regarding the block year.

Thank you.

Hi Shilpi, As per my understanding, some companies give 1 month's basic salary under LTA, some use 1-10% of CTC, and some companies provide a cap of 75,000/- or 100,000 (depending on the CTC of an employee).

In your case, you have carried forward the previous year's LTA to the current year and are providing the benefit. There is no rule for a maximum limit. If an employee provides the bill with valid supporting and rule, then he is eligible to avail the benefit.

Regards,
Siji

Dear All,

Thank you for your responses. My concern is that if I provide a 1-month Leave Travel Allowance (LTA) to a senior management employee, which amounts to approximately 1 Lakh, what is the benefit, as they won't be able to claim 2 Lakhs for any journey in India, even if they fly from Jammu & Kashmir to Kanyakumari? Moreover, if the remaining amount will be taxable, then why not include it in any other component instead of LTA?

Do you think I should offer an LTA amount that is more realistic and easier to claim?

Regards,
Shilpi

Hi Shilpi, in this case, you have the following payment options:

1. No carried forward LTA for the succeeding year. Whatever the accrual amount, pay it in the same year itself. It will definitely be taxable.
2. Keep a cap, say ₹50,000 or ₹75,000, to avoid huge tax deductions.

You can provide options to the employees, i.e., if they wish to select LTA or not. If yes, you can offer options like 1% - 10% of CTC (if your company policy allows this). If no, then provide under other reimbursement heads.

Regards,
Siji

Dear Mr. Harish, I am sorry to correct you. It is not the Financial Year; it is the Calendar Year. It is not 4 financial years, but a block of 4 years as declared by the Central Govt./I.T. Department. Only travel bills can be accepted, and lodging/boarding bills.

Sathish

Dear Shilpi, Which component are you talking about? All components are taxable except conveyance and medical reimbursement, and those also have limits. For higher salary employees, you are supposed to give them LTA as one month's basic. There is no tax limit for the LTA; you only need to provide the declaration, not the details of bills, as per the IT Act. The IT Act also does not require collecting an agreement to claim HRA; only a declaration is required that you are paying some amount as rent. Kindly go through the TAXMAN book to get all the knowledge related to taxable information on salary.

Regards, AKD

I have only one correction to make in your statement. LTA can be claimed only for travel and not for boarding and lodging.

Regards,
M.V. KANNAN