Leave Travel Concession Exemption Section 10(5) of Income Tax

Leave Travel Concession Exemption Section 10(5) of Income Tax, Monetary Limits exemption for leave travel for FY 2017-18 AY 2018-19

This clause exempts the leave travel concession (LTC) received by employees from their employers for proceeding to any place in India,
(a) either on leave or
(b) after retirement from service or
(c) after termination of his service.

The benefit is available to individuals – citizens as well as non-citizens – in respect of travel concession or assistance for himself or herself and for his/her family- i.e., spouse and children of the individual and parents, brothers and sisters of the individual or any of them wholly or mainly dependent on the individual.

Limit of exemption – The exemption in all cases will be limited to the amount actually spent subject to such conditions as specified in Rule 2B regarding the ceiling on the number of journeys for the place of destination.

Under Rule 2B, exemption will be available in respect of 2 journeys performed in a block of 4 calendar years commencing from the calendar year 1986. Where such travel concession or assistance is not availed by the individual during any block of 4 calendar years, one such unavailed LTC will be carried forward to the immediately succeeding block of 4 calendar years and will be eligible for exemption.

Example: An employee does not avail any LTC for the block 2010-13. He avails it during 2014. He is allowed to carry forward maximum one such holiday to be used in the succeeding block. Therefore, he will be eligible for exemption and two more journeys can be further availed.

Monetary limits – Where the journey is performed on or after the 1.10.1997, the amount exempted under section 10(5) in respect of the value of LTC shall be the amount actually incurred on such travel subject to the following conditions:

(1) where it is performed by air, an amount not exceeding the air economy fare of the National Carrier by the shortest route to the place of destination;
(2) where places of origin of journey and destination are connected by rail and the journey is performed by any mode of transport other than by air an amount not exceeding the air-conditioned first class rail fare by the shortest route to the place of destination; and
(3) where the places of origin of journey and destination or part thereof are not connected by rail, the amount eligible for exemption shall be,—

  • where a recognised public transport system exists, an amount not exceeding the 1st class or deluxe class fare, as the case may be, on such transport by the shortest route to the place of destination ; and
  • where no recognised public transport system exists, an amount equivalent to the air-conditioned first class rail fare, for the distance of the journey by the shortest route, as if the journey had been performed by rail.

Note: The exemption referred to shall not be available to more than two surviving children of an individual after 1.10.1998. This restrictive sub-rule shall not apply in respect of children born before 1.10.1998 and also in case of multiple births after one child.

Illustration 4
Mr. D went on a holiday on 25.12.2016 to Delhi with his wife and three children (one son – age 5 years; twin daughters – age 2 years). They went by flight (economy class) and the total cost of tickets reimbursed by his employer was Rs. 60,000 ( Rs. 45,000 for adults and Rs. 15,000 for the three minor children). Compute the amount of LTC exempt.

Solution

Since the son’s age is more than the twin daughters, Mr. D can avail exemption for all his three children. The restriction of two children is not applicable to multiple births after one child. The holiday being in India and the journey being performed by air (economy class), the entire reimbursement met by the employer is fully exempt.

Illustration 5
In the above illustration 4, will be there be any difference if among his three children the twins were 5 years old and the son 3 years old? Discuss.

Solution

Since the twins’ age is more than the son, Mr. D cannot avail for exemption for all his three children. LTC exemption can be availed in respect of only two children. Taxable
LTC = 15,000 x 1/3 = Rs. 5,000
LTC exempt is only Rs. 55,000 (i.e. Rs. 60,000 – Rs. 5,000)

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