Adding LTA to Salaries: What Are the Legal and Financial Implications for Employers?

LTA as a Salary Element: Implications and Compliance

I need your help regarding the LTD rule. We want to add LTA as a salary element to provide tax benefits to our employees. What will be the implications for the employer? Are there any required legal compliances? Does this attract PF contributions? What other considerations should we keep in mind while adding LTA as a salary component?

Regards,
Amruta

No, LTA does not attract PF contributions.

There are predetermined blocks of four calendar years; the first block began in 1986 to 1989, the next block was 1990 to 1993, and so on. You can claim exemption for up to two journeys in a block of four calendar years. The current block is 2010 to 2013. Simply put, if you have claimed an LTA exemption in 2010, then you can claim one more until 2013.

If you are not able to make a claim in a block, there is a carry forward facility available. You can carry forward one journey, but only in the first calendar year of the next block of four years. So, in such a case, in the next block, you can claim three LTA exemptions in total.

How to make a claim?

Give a written declaration to your employer with travel details and the amount spent. As per the Supreme Court, if you submit a declaration stating the amount you spent, you don't need to provide the actual bills. We recommend you keep the tickets handy in case your employer or the tax authorities need to see them later.