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.
Leave Travel Allowance is one of the best tax saving tools that an employee can avail. 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 expenses such as food expenses, shopping expense 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 lesser.
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 lesser.
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 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 the amount of allowance that you want to provide your employees.
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