Is It Wise to Include LTA as an Earning Head in Monthly Salary Breakup? Seeking Advice!

Consideration of LTA as an Earning Head

Should we consider LTA as an earning head, like HRA, Personal Allowance, Medical, and others, in the monthly gross salary when making the salary breakup? Please appraise, as I want to include it in earning heads to avoid more liability on the employer's side, considering LTA is mandatory. Currently, the company has not incorporated such a salary break-up to date, and I am keen on including LTA in the earning heads.

Thanks & Regards,
Ananta Karad
[Phone Number Removed For Privacy Reasons]

Yes, LTA is part of the gross salary. For CTC below Rs. 2.4 Lac, you have components like Basic, HRA, Conveyance, etc. For CTC between 2.4-7.5 Lacs, you can have components in addition to the above such as LTA, Telephone reimbursements, books & periodicals, Medical allowance, etc.

Hope the above information is helpful.

I agree with you, but I have noticed in many companies' payslips that they have mentioned LTA in the gross salary itself. So, I need to drop the LTA head and replace it with another head in the same.

Please let me know if LTA is mandatory to reimburse upon submitting proof (travel bills and other documents) or if it is fine to consider it in the gross salary?

Please appraise.

Regards,
Anant Karad

LTA is an annual component and is considered in the total annual payout (Cost-To-Company) towards an employee at the end of the year. It need not be shown in the monthly salary heads as this is a one-time payment in a year or once in two, three, or four years as it is claimed. It need not be shown in the monthly salary slip like basic, HRA, personal pay, etc., as you mentioned above.

However, there are companies paying LTA monthly (to certain lower-level staff) and show the same in the monthly salary slip. By paying this amount monthly, you are adding liability only in ESI payments for those who are earning a monthly salary below 15K.

Objective of LTA

The objective of LTA is that it is an (A)ssistance to (T)ravel so as to take out some time (Leave) from the routine job and enjoy time with family. As a practice, LTA is paid only against PL/EL taken for the purpose. This amount can be claimed every year or as you claim and is exempted from Income Tax liability (against travel expenses) twice in a 4-year block.

This exemption is only for the amount you spent for TRAVEL out of the claimed amount by submission of the ticket for the claim purpose. It is not mandatory for the employer to collect the proof of your travel; it is the employee who is answerable to the IT department in case they ask for an explanation. However, companies still collect travel tickets to avoid their headache at a later stage when the IT department asks for details of payment. If you have not submitted travel proof to your employer but claim tax exemption against it, you have to preserve the tickets. If the IT department asks for an explanation while you submit your documents to them, you have to furnish the documents to them.

Hope I could give you an idea about it.

Regards,
Suresh

Dear Suresh Sir, Thank you for your advice. I have a query regarding our approximately 50 employees who have been with the company for about a year. They currently receive their salary under three heads. Upon joining the company, I revamped the salary breakdown to include BASIC, HRA, CONV., EDUCATION ALLW., MEDICAL ALLW., PERSONAL ALLW., and LTA. The gross salary is distributed among these categories. Should I consider replacing LTA with another category?

If LTA is not paid on a monthly basis, is it mandatory to pay it once a year according to IT or other laws? I am new to these matters and wish to make informed decisions without tarnishing my reputation or that of the company, all while ensuring no decrease in the CTC of employees.

I await your response.

Thanks & Regards, Ananta Karad

Dear friend,

LTA or LTC:

1) Many members have confirmed that LTA, not being a regular earning head, does not merit being shown as a regular item in the Gross salary. This is acceptable. In rare cases, some employers pay a fixed amount towards LTA, allowing employees to submit bills/expenses details before March 31st for IT purposes, instead of annual, biennial, or quadrennial payments. The frequency depends on the employer's policy. Please refer to the attached write-up on LTA for further information.

It is important to note that LTA is not a mandatory payment or a part of salary earnings. In most cases, it is a "Reimbursement of expenses incurred" by the employee, and therefore not subject to taxation.

Also, the IT Act does not prescribe any statutorily payable emoluments. The Act only addresses what is taxable, when it is taxed, and how much is taxed when paid, payable, or accrued.

2) You have not mentioned anything about DA (fixed DA & Variable DA). Do you have this component in your gross salary? Have you considered City Compensatory Allowance?

There are other allowances such as Risk allowance, Clothing or Uniform allowance, Project Allowance, Incentives/Performance Bonus, Night shift allowance, Lunch (Canteen) allowance, etc. Please see the attachment for more details.

I hope this helps clarify your queries.