Is there a Leave Travel Allowance limit?


#1

Hi,
Could someone please tell me what’s the limit on LTA? I’m setting up a new firm and I’m a little confused in this regard. How does it affect me, the employer if I raise or lower it? And how does it affect the employee. I want what’s best for both parties. So any help here would be appreciated.
Thanks


#2

Hi Adi,

Leave Travel Allowance is one of the best tax-saving tools that an employee can avail of. It is a tax exemption offered by employers to their employees. Leave Travel Allowance, as the name suggests, is an allowance paid to the employee by the employer when the former is travelling with their family or alone. The amount paid as Leave Travel Allowance is tax free.

The exemption is restricted only to the travel cost incurred by the employee. The tax exemption is not valid for the costs incurred during the entire trip, which might include expenditure such as food expenses, shopping expenses and other such expenses. The exemption is not available for more than two children born after October 01, 1998. Exemption is allowed for only two travels within a block of four years. If the individual doesn’t take advantage of the exemption within this block, they can carry it over to the next block.

Given below is a list of expenses that is exempted under Leave Travel Allowance.

• Travel by air- Economy air fare by the shortest route or amount spent will be exempted depending on whichever is lower.
• Travel by rail- A.C. first class fare by the shortest route or the amount spent on travel will be exempted depending on whichever is lower.
• Place of origin and destination connected by rail, but journey performed by any other mode of transport
• Place of origin and destination not connected by rail (partly/fully), but connected by other recognised public transport system.
• Place of origin and destination not connected by rail (partly/fully) and not connected by any other recognised public transport system also.

Leave Travel Allowance exemption is limited to the amount of the allowance paid to the employee as part of their Cost To Company (CTC). One cannot claim exemption that is beyond the actual allowance amount being provided. Depending on your affordability, you can decide on the amount of allowance that you want to provide your employees.

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Cheers,
BB Expert


#3

I’m sorry. I don’t quite understand this. What do you mean by affordability? Do I have to pay some part of it?? Or the tax on it?

Thanks.


#4

Hi Adi,

You must understand that you are reimbursing the expenses incurred by your employees. It is up to you to decide whether you want to reimburse all of the amount or whether you want to restrict it to a particular amount, say, Rs. 15,000 per year. This is entirely up to you. Also, based on the designation of the employee the amount might be increased or decreased. Usually, for the top management this amount is much higher than for those who work at the lowest level in the organisation. You must work these things out when you are providing a Cost To Company (CTC) calculation for your employees.

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Cheers,
BB Expert