Is LTA Taxable and How Much Gratuity Can You Expect? Let's Discuss Salary Components

I want to know if LTA is taxable when LTA is part of the salary. Also, what is the maximum LTA amount that an employee can receive? Additionally, I would like to know how much gratuity is paid to employees and whether gratuity is taxable or not.

Regards,
Vikram Kumar

You can avail of tax exemption for the LTA twice in a block year of 4 years. You must avail a minimum of 6 days of PL for availing tax exemption. You have to produce train/air/bus tickets of the shortest routes for your family and dependents. No limit is specified for LTA.

Regards,
Pon

Thank you for the reply, Mr. Pon. I am a little confused because our company pays LTA on a yearly basis. How can I define the block year? Suppose I joined the company on 02-04-2011, and I am eligible for LTA in 2013. What is the calculation for this LTA?

Regards,
Vikram

LTA Claim and Taxation

LTA can be claimed twice in a block of four calendar years. The current block is from 2011-2014. Even though nowadays companies pay this LTA on a yearly basis, the employee must be on official leave on the day of travel and must submit relevant travel bills, such as train, flight, or bus tickets.

When employers pay this LTA annually, the financial year is considered for tax purposes, which means from April 2011 to March 2012, and so on. The eligibility for the LTA amount depends on the employee's position, level, and grade.

Gratuity Exemption

Regarding gratuity, it is exempted up to 10 Lakhs from tax. I hope I have cleared up any confusion with my response.

Regards,
M@NOJ HR

Thanks for the reply, Mr. Pon. I am a little confused because our company pays LTA on a yearly basis. How can I define the block year? Suppose I joined the company on 02-04-2011, and I am eligible for LTA in 2013. What is the calculation for this LTA?

The current block year is 2010-13. If you could not avail LTA (for tax exemption) in the current block year, you can avail it in the next block year. LTA is based on the calendar year. If you are not undertaking the journey, the amount received at the end of the year will be treated as taxable income.

Hope I clarified.

Pon

Taxability of LTA and Other Benefits

LTA, when actually availed for oneself and dependent family members after completing one year of service (once in a block of four years), is not taxable, subject to the production of actual rail/air tickets. The amount spent on lodging, boarding, sightseeing, etc., is not considered for tax exemption. Only to-and-fro traveling expenses are considered.

Gratuity, being a terminal benefit, is not taxable at all. Encashment of leave received as a result of service termination is also not taxable. Company contributions to one's PF account, received after five years of service, are not taxable. However, if received before completing 5 years, it is considered taxable income. Own subscription to PF received after the closure of the PF account is not taxable, regardless of the number of years of service.

Best regards,
Vikram Kumar

Leave Travel Allowance (LTA)

Taxability Information: Presently, the Income Tax rules that govern the non-taxability of LTA are as follows:

1. LTA will be treated as non-taxable only twice in a block of four calendar years (current block 2010 to 2013).
2. All travel must be within India.
3. The employee must travel themselves at some part of the journey during the travel by the family.

• Amount: Full round-trip cost of the chosen mode of transportation for eligible parties traveling (the shortest route to the destination must be taken).

• Eligible Population: All employees, their spouses, and up to two of their children. Also, any parents or siblings of the employee who are wholly or mainly dependent on the employee themselves for support and maintenance.

• Qualifying Expenses: Valid for domestic travel, two times every four calendar years. Employees may claim the travel cost for self, spouse, and dependent children when availing of this benefit, but all eligible family members must travel.

Understanding Leave Travel Allowance (LTA)

LTA means Leave Travel Allowance or Leave Travel Assistance. If it is an allowance given through salary, it is taxable irrespective of the expenditure incurred as it is an allowance. Under the Income Tax Act, only those allowances will get exemption as specifically mentioned in the Act. Whereas, if LTA is in the form of assistance/concession, an employee is entitled to exemption under section 10(5) of the Income Tax Act in respect of the value of travel concession or assistance received by or due to him from his present or former employer for himself and his family, in connection with his proceeding:

- On leave to any place in India
- To any place in India after retirement from service or after the termination of his service.

The exemption shall be allowed subject to the following:

(i) Where the journey is performed by air - Maximum exemption shall be an amount not exceeding the air economy fare of the national carrier by the shortest route to the place of destination.

(ii) Where the place of origin of the journey and destination are connected by rail and the journey is performed by any mode of transport other than by air - Maximum amount shall be an amount not exceeding the air-conditioned first-class rail fare by the shortest route to the place of destination.

(iii) Where the places of origin of the journey and destination or part thereof are not connected by rail and the journey is performed between such places - The amount eligible for exemption shall be:

(A) Where a recognized public transport system exists, an amount not exceeding the 1st class or deluxe class fare, as the case may be, on such transport by the shortest route to the place of destination.

(B) Where no recognized public transport system exists, an amount equivalent to the air-conditioned first-class rail fare, for the distance of the journey by the shortest route, as if the journey had been performed by rail.

EXEMPTION WILL IN NO CASE EXCEED ACTUAL EXPENDITURE INCURRED ON THE PERFORMANCE OF JOURNEY.

EXEMPTION CAN BE CLAIMED IN RESPECT OF ANY TWO JOURNEYS IN A BLOCK OF 4 YEARS (PRESENT BLOCK IS 2010-2013).

EXEMPTION SHALL NOT BE AVAILABLE TO MORE THAN TWO SURVIVING CHILDREN OF AN INDIVIDUAL AFTER 01-10-1998.

EXEMPTION IS ALLOWED ONLY IN RESPECT OF FARE. Expenses incurred on porterage, conveyance from residence to the railway station/airport/bus stand and back, boarding and lodging or expenses during the journey will not qualify for exemption.

Gratuity

Gratuity is a payment made by the employer to an employee in appreciation of the past service rendered by the employee. It can either be received by:

(a) The employee himself at the time of retirement/resignation; or

(b) The legal heir in the event of the death of the employee.

Gratuity received on retirement/resignation is taxable under the head "Salary" whereas received by the legal heir of the deceased employee is also taxable under the head "Income From Other Sources." In both cases, the gratuity is exempt up to a certain limit under section 10(10) of the Income Tax Act.

Section 10(10)(i) deals with the gratuity amount paid to the govt/local authority employees.

Section 10(10)(ii) deals with the exemption amount of gratuity paid under the Payment of Gratuity Act 1972.

Section 10(10)(iii) deals with other cases.

The Maximum Exemption amount is Rs 3.50 Lakhs, which has been increased to Rs 10.00 Lakhs w.e.f. 24.05.2010.

Thanks

Regards, YCB