by Mr. T E Gautham, CEO, Hinote Systems, Chennai
The tax exemption on LTA can be availed only in respect of two (2)
journeys performed in a block of four (4) calendar years.
This is where the complexity related to calculation of tax exemption on
LTA starts. According to the income tax law, an employee should have undertaken
leave travel for the purpose of claiming tax exemption and in a block of 4
(four) calendar years the employee can claim tax exemption for 2 (Two) journeys.
While income tax is calculated on LTA paid during a tax year (April to
March), the exemption itself shall be provided only for 2 (Two) journeys across
4 (Four) calendar years. The first block
(as specified by the tax department) of 4 calendar years commenced in Jan 1986.
We are currently (November 2013) in the block starting January 2010 and
ending in December 2013. An employer, before providing tax exemption on LTA,
needs to check if the employee has availed tax exemption for more than 2 (Two)
journeys in the particular block of 4 years.
For example, let us assume that an employee claims tax exemption on LTA
for the journeys he undertook in April 2010 and April 2011.
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| Mr. T E Gautham |
If in the tax year April 2012 to March 2013 the employee claims tax
exemption on LTA for the journey he /she undertook in say, April 2012, the
employer should not provide any tax exemption since the employee has already
used up the tax exemption on 2 journeys
in the block (January 2010 to December 2013).
If an employee works with the same employer through the block of 4 years,
the employer will know if the employee has availed tax exemptions for 2
(Two) journeys in the block.
But, if an employee moves from one employer to another during a block of
4 years, the second employer should check with the employee whether the
employee has received tax exemption for more than 2 journey thus far in the
block from the earlier employer and provide tax exemption accordingly.
In addition to the above, if an employee does not avail tax exemption
(for either 1 or / 2 journeys) on LTA in a block of 4 calendar years, he or she
can avail tax exemption for 1 journey in the first year of the next block of 4
years.
In other words, an employee can avail up to 3 exemptions in a block of 4
years if the employee did not avail tax exemption on 1 or / 2 journeys in the
previous 4 year block.
The income tax act only talks about a maximum of 2 (or / 3) journeys for
the purpose of tax exemption in a block of 4 years. An employee can undertake
both the journeys in the first year & claim tax exemption in the first year
itself. If two journeys are undertaken
in the first year itself, the employee has to wait for the next block of 4
years before he can avail tax exemption on LTA.
We wonder how the income tax department came up with the idea of looking
at calendar year for the purpose of LTA tax exemption. Maybe the calendar year
idea came from statutes such as the Shops &
Establishments Act which mandate providing leave to employees as per
calendar year.
Also, why a maximum of 2 tax exemptions in a block of 4 years ? Employers
find it difficult to keep track of the number of times an employee avails tax
exemption on LTA.
The income tax department could allow tax exemption on LTA each tax year.
This would make the life of employers easy. After all, what is wrong in
encouraging people to take a vacation each year instead of twice every 4
calendar years?
About Hinote Systems
Hinote offers payroll services and software to organizations in India. We
currently manage payroll for thousands of employees across customer
organizations all over India. Our customer organizations are from sectors such
as manufacturing and services including Information Technology, Business
Process Outsourcing and the social sector. We have significant expertise in
payroll and information technology.
Hinote Systems provides services,
Software Related to Payroll and HR
1, Venkatarathinam Nagar Extn,
Second Street, Adyar, Chennai- 600 020
Phone: +9144 4330 7244
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