LTC exemption can be claimed only if travel is within India

People travelling to foreign destinations and wanting to claim higher tax exemptions has been an issue of much debate of late. Here is what the law says on leave travel concession (LTC).

Written by VineetAgarwal | Published:August 27, 2013 4:04 am

People travelling to foreign destinations and wanting to claim higher tax exemptions has been an issue of much debate of late. Here is what the law says on leave travel concession (LTC).

Eligibility for LTC

According to Section 10(5) of the Income-tax Act,1961,an exemption is available to an individual for expenses incurred on travelling to any place in India with his family. Family includes spouse and children as well as parents,brothers and sisters who are dependent on the individual. The exemption can be obtained for a maximum of two children and is not available if the employee is not on leave and family members have travelled.

The debate — whether foreign destinations are included

The IT Act permits exemption only if travel is within India. However,sometimes people plan their foreign travel having two Indian cities en-route their foreign destination and claim travel to the Indian destination. This practice has always been a grey area. However,in a recent judgment by the Chandigarh Tribunal,it has been clarified that the concession is available only for domestic travel and cannot be clubbed with an overseas journey. In this case,the individual had travelled to Singapore and Malaysia and the tribunal denied the tax benefit on the total cost/partial Indian travel cost.

Amount eligible for tax exemption

If it’s air travel,then economy air fare of the national carrier by the shortest route can be claimed for exemption. In case of any other mode for destinations connected by rail,it is first AC rail fare by the shortest route. And for destinations not connected by rail,first class or deluxe class fare,where recognised public transport system exists,provides for exemption. If no recognised public transport system exists,first AC rail fare for the equivalent distance will be considered. An important point to note is that the exemption is available for the amount incurred by the shortest route to the place of destination. If the travel is for a circuitous route,then the exemption will be available for the farthest destination through the shortest route.

Timelines for claiming exemption

Exemption is available in respect of two journeys performed in a block of four calendar years. The current block runs from 2010 to 2013. If the exemption is not availed by an employee during such block,it can be availed in the first calendar year after the four-year block. As per the proposed Direct Taxes Code,LTC may not be available. But there is a popular demand to restore this beneficial provision.

Employees who are planning a vacation with family should look into the above and claim this concession appropriately. Only genuine travel expenditure for travel in India should be claimed to avoid any unnecessary questioning from the tax officer later.

The author is a director in KPMG. The views expressed are personal

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