Tax Exemption on LTA - Leave Travel Allowance..

by Mr.T.E. Gautham, CEO, Hinote Systems, Chennai

As a firm engaged in the business of payroll processing & statutory compliance related to payroll, we wonder if the tax law governing tax exemption on Leave Travel Allowance (LTA) is among the most complex tax legislations in India. Each year organizations face significant difficulty while calculating tax exemption on LTA when they carry out the year-end tax compliance work.

Let us examine the law and the practice related to calculation of LTA exemption in this post.

Gautham, CEO, Hinote Systems
Section 10(5) of the Income Tax Act, 1961 (along with Rule 2B of the Income Tax Rules) governs calculation of tax exemption on LTA.

The key conditions as specified by Section 10(5) (and Rule 2B) are as follows.

 LTA Payment to Employees..

LTA should have been paid / be payable to an employee if an employee wishes to avail tax exemption on LTA.

In other words, if an employee does not receive an amount under a separate head of pay  called for example LTA or / LTC  for the purpose of meeting leave travel expenses, the employee can not avail tax exemption on account of leave travel.

Also, in any particular tax year (April to March), tax exemption shall be limited to the LTA (or / by whatever other name the head of pay for the purpose of meeting leave travel expenses is called) amount which is paid to an employee in that tax year.

An Illustration..

An employee is eligible to receive Rs. 12,000 in a tax year (April  to March ) under the LTA head of pay.

However, the employee can choose not to receive the LTA amount in a tax year and he or /  she can carry forward the LTA amount to the next  tax year. What is the maximum LTA amount on which tax exemption should be calculated?

If an employee chooses to receive LTA each year (without carrying it forward), the maximum tax exemption the employee can receive shall be Rs. 12,000 per tax year.

If an employee chooses to carry forward the amount in tax year 1 and receives Rs. 24,000 under LTA in tax year 2,  his / her LTA tax exemption shall be Rs. 0 in tax year 1 since he did not receive any amount under LTA and in tax year 2, the maximum tax exemption he /she can receive on LTA shall be Rs. 24,000.


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.
 
The firm'scustomer organizations are from sectors such as manufacturing and services including Information Technology (IT), Business Process Outsourcing and the social sector. We have significant expertise in payroll and information technology.

Hinote Systems provides services,
Software Related to Payroll / HR

Postal Address: 
1, Venkatarathinam Nagar Extn,
Second Street, Adyar, Chennai-  600 020
phone: +9144 4330 7244


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3 comments:

  1. Nice post! This post gives a better idea. Thanks for the useful information. I hope you will share some more content. Please keep sharing!

    Accounts Payable And Receivable
    Finance And Accounting Outsourcing
    Mortgage Processing
    Claims Management Services

    ReplyDelete
  2. Nice post! This post gives a better idea. Thanks for the useful information. I hope you will share some more content. Please keep sharing!

    Accounts Payable And Receivable
    Finance And Accounting Outsourcing
    Mortgage Processing
    Claims Management Services

    ReplyDelete
  3. Excellent post. keep posting like this kind of content Payroll Software India is a leading software company in India. They outsource software. This software is based on cloud usage.

    ReplyDelete

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