ALL ABOUT LEAVE TRAVEL CONCESSION (LTC)

Query 1]

I am a PSU employee. Recently during Oct’2014, I have performed LTC journey (myself and family) in two separate groups i.e. onward journey was performed by my family and myself separately on difference dates whereas inward journey was performed as single group on same dates. I myself have taken leave for the above journey. My employer is not allowing LTC exemption at source stating that journey should have been performed by me along with my family in view of circular no. 8 of 2012 but the circular is relevant to FY 2012-13 only. Please also elaborate about the law related to LTC also by publishing in the Hitavada. [tusharagrawalkps@gmail.com]

Opinion:

Lawmakers do considers all the situations that they can contemplate while drafting the statute. However, it is beyond the reach of any human to visualize and provide for circumstances emerging subsequently.  One such instance arises from your query as well, mainly as a result of omission of some part of TDS ‘2012’ Salary circular from subsequent ‘2013’ circular.

Before responding to interesting part of your query, let us have a look at the law relating to Leave travel concession or leave travel allowance (LTC/LTA).

LTC is one of most common element in the salary adopted by employers to remunerate employees due to the tax benefits attached to it. Section 10(5) of the Income Tax Act, 1961 read with Rule 2B offers an exemption in respect of 2 journeys performed in a block of 4 calendar years, as under:

1. Eligibility of Exemption:
   LTC exemption can be claimed where the employer provides LTC to employee for leave travel to any place in India undertaken by the employee for himself & his family. Such exemption is limited to the extent of actual travel costs incurred by the employee. Travel has to be undertaken within India and overseas destinations are not covered for exemption. The amount of exemption is restricted as under:
   1. Journey performed by Air – Economy Air fair of National carrier by the shortest route or the amount actually spent, whichever is less, will be exempt.
   2. Journey performed by Rail – A.C. first class rail fare by shortest route or amount actually spent, whichever is less, will be exempt.
   3. Place of origin and destination of journey connected by rail but journey performed by other mode of transport – first class rail fare by shortest route or amount actually spent, whichever is less, will be exempt.
   4. And Place of origin & destination not connected by rail (partly/fully) but connected by other recognized Public transport system – First class or deluxe class fare by shortest route or amount actually spent, whichever is less, will be exempt.
   5. Also Place of origin & destination not connected by rail (partly/fully) and not connected by other recognized Public transport system also – AC first class rail fare by shortest route (as the journey had been performed by rail) or the amount actually spent, whichever is less, will be exempt.
2. Exemption on Actual Expense:
   The exemption is restricted to the actual expenses incurred by the employee. Travel cost, for the purpose of claiming an LTC exemption, means the cost of travel and does not include any other expenses such as food, hotel stay etc. The meaning of‘family’ for the purposes of exemption includes spouse and children and parents, brothers and sisters who are wholly or mainly dependent on the employee. An individual would not be able to claim the exemption in relation to his parents, brother or sisters unless they are wholly or mainly dependent on the individual. Further, exemption is not available for more than two children of an individual born after 01.10.1998. This restriction does not apply in respect of children born before this date, and also in cases where an individual, after having one child, begets multiple children (twins or triplets or quadruplets, etc.) on the second occasion. The term “Child” includes a step-child and an adopted child of the individual.
3. Whether exemption can be claimed every year?
   As already discussed above, the obvious answer is, No. Rules provide for an exemption only in respect of 2 journeys performed in a block of 4 calendar years. The current block runs from 2014-2017. However, LTC (or LTA) now have a carry forward feature. If the taxpayer has not availed leave travel concession during any of the specified 4 year block periods on one of the two permitted occasion (or on both occasions), exemption can be claimed in the first calendar year of the next block (but in respect of one journey only). This is known as “carry over concessions”. In such case, the exemption so availed will not be counted for the purpose of claiming the future exemptions allowable in respect of 2 journeys in the subsequent block.

Issues in the present query:

Section 10(5) allows an exemption to an individual towards the value of any travel concessions. (or assistance) Received by (or due) to him from his employer for himself and his family in connection with his proceeding on leave to any place in India.

In short, for exemption:

1. Employee should have taken leave from his organization and
2. Employee should have travelled along with his/her family members.

The section has incorporated the word “and” & “his proceeding” which, in my opinion, would cover complete domain of outward as well as inward tour of an employee. To be more specific. If family members are not travelling with an employee, their travelling expenses could not be considered for tax exemption.

Circular No. 8 of 2012 appears to be in consonance with the legal spirit of section 10(5). CBDT circulars are clarificatory in nature and are bound to remain within the four corners of legal provisions. The exclusion of few words of 2012 circular. In subsequent salary circular for 2013 (or vis a vis earlier circular of 2011) Would not change the provision of law. In my opinion, DDO is right in rejecting the claim & the amount may not be exempt u/s 10(5) of the Income Tax Act-1961.

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