Is It Fair for Employers to Make LTA Mandatory and Accumulate It Over a Year?

Hello, Colleague, I have joined XXXX company where I have discovered that we have to take LTA as a mandatory component, and there are two methods to avail it:

- Complete 1 year calendar year and travel and submit the tickets (Non-Taxable).
- Take at least 4 EL to get consolidated LTA in January Salary (Taxable).

My question is

If I don't travel and want LTA every month in my salary for which I am okay to pay tax as well, is it wrong to ask the employer to change their policy and make LTA optional? It seems like they are forcing us to stay for a year since they have LTA amount accumulated every month. Is this practice legal or right?

Understanding LTA Allowances

Other than statutory salary, all other allowances are purely management prerogative and can be enforced as part of company policy. LTA is not part of your salary but is an allowance falling outside the salary. As such, it can be paid annually. It is non-taxable in 2 years when you submit the bills in support of your travel. It is taxable if you claim it annually without undertaking any travel and without submitting bills. In this case, it becomes a taxable allowance. This is the practice that is followed by all companies. I have not come across any situation where LTA is claimed monthly.

Hi Madhu,

Thanks for your response. My point was, can I ask the employer if I want to opt-out of LTA and have the amount credited to my kitty every month?

Let's say my gross is 15,000, and 1,500 per month is deducted for LTA. My net will be 13,500 (please exclude other deductions). Even employees with very low pay have to opt for LTA. My annual CTC is under tax exemption, so why do I need LTA in that case? Should LTA be applicable to all?

Thank you.

Understanding LTA in Salary Structure

Normally, LTA will be part of the salary for those whose salary falls under the taxable bracket. Moreover, LTA will not be part of the gross salary, but being an annual component, it will be outside the salary breakup, yet obviously under the CTC.

LTA and Allowances: Compliance with Wage Policies

LTA and any other allowance, the payment of which depends on the occurrence of any incident or the expiry of a set time (as in this case, one year from joining), should not be part of the gross salary. This will not be considered as salary for deciding whether the organization is adhering to the minimum wage policy of the government. Furthermore, LTA should not be deducted from the monthly salary. If deducted, it is a violation of the Payment of Wages Act.

Hi Ajit, from what I see, you can ask your employer to pay the LTA as a salary component to you every month in your salary stack. It is up to you whether you want to use it for a vacation. If you do not avail the vacation option, it just remains as a taxable component. Anyway, as your CTC does not fall under the taxable bracket, this does not matter.

LTA and EL Requirement

As for having to avail 4 ELs to get a consolidated LTA in the January salary, this does not seem correct. Normally, at least 1 EL should be applied to avail tax exemption on the LTA received. But this is only for tax exemption and has nothing to do with receiving the LTA itself.

Confirmation on LTA in Private Limited/MSME/S&E

Please confirm:

1. Whether LTA is mandatory in private limited/MSME/S&E.
2. Can LTA be paid as a part of the monthly salary?

Thank you.

Understanding LTA as a Non-Mandatory Component

LTA is not a mandatory component. It is only an additional benefit given to employees. If paid, it should be as per the guidelines prescribed by the government with regard to taxability. It cannot be paid as part of the monthly salary. If paid as a monthly component, the very purpose of paying it will be defeated.

Understanding CTC and Its Components

The concept of CTC (Cost to Company) was originally an annual package for employees, including all elements, perks, bonuses, and leaves (except deputation and overtime, if any).

Monthly and Daily Breakdown of CTC

Fresh generation HR has broken it down into monthly, and in some cases, daily rates. This breakdown is causing confusion as some benefits come into effect after a certain period following the establishment of employer-employee relations, rather than from day one.

Examples of Benefit Accrual

For example, EL (earned leave) is not part of daily wages; it is accrued and credited at the end of the calendar year. The Festive Bonus is based on total service in the last year but is only paid on a specified date. Gratuity is payable after five years of service; if the employment relationship ends before this period, the employee is not eligible for these amounts, even though they are included in the CTC.

Misunderstandings During Probation

If an employee claims a bonus during the probation period, it can lead to misunderstandings. Salary slips should be based on wages only, not on CTC, to maintain a good employee-employer relationship. However, at the end of the financial year, HR can provide a separate plain sheet with CTC breakup details.

LTA and Gratuity Conditions

For LTA (Leave Travel Allowance), employees can claim it after two years or meet the requirement of staying with the company for at least two years since the LTA clause specifies once every two years. If gratuity is included in the CTC but the employment does not last more than five years, the employee is disqualified from making a claim.

CTC vs. Gross and Net Salary

CTC does not determine gross salary, net salary, or specific components to be added or deducted; it simply represents the cost to the company per year for a specific employee, inclusive of all benefits and payouts.