Calculate Deduction on Leave Travel Allowance under Section 10(5) of Income Tax Act

How to Calculate Deduction on Leave Travel Allowance(LTA) under Section 10(5) of Income Tax Act, 1961. LTA Deduction/exemption under income tax is available to individual employee for travelling in India with his family. LTA Exemption or Deduction amount will be limited to  travel costs i.e. cost of ticket, entire cost of the holiday is not covered under LTA Exemption, so one must keep the ticket safe and submit it to employer in order to claim LTA deduction under Income Tax.

  1. Leave Travel Allowance (LTA) is granted by the employers to the employees as part of the remuneration to provide for travel expenses incurred during the year.
  2. Leave travel allowance is the amount or value of any travel concession or assistance received by the Assessee or employee or amount due to him because of any of the reasons given below:
  3. From his employer for himself and his family in connection with his proceeding on leave to any place in India;
  4. From his employer or former employer for himself and his family in connection with his proceeding on leave to any place in India after retirement from service or after termination of his service.
  5. The value of LTA is exempt under section 10(5) of Income tax Act 1961
  6. Family of individual for the purpose of LTA exemption amount includes:
    1. The spouse and children of the individual;
    2. The parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on him
  7. For the purpose of exemption of LTA one must have travelled within the country, however international travelling is not valid for exemption
  8. Under LTA exemption only travel costs are covered i.e. cost of ticket, entire cost of the holiday is not covered; so one must keep the ticket safe and show it in order to claim LTA. 
  9. For children born after October 1, 1998, the exemption is restricted to only two children (unless, one birth has resulted in multiple children like twins and triplets).
  10. If members of family travel without Assessee no LTA can be claimed.
  11. As per the Rules, for the purpose of LTC block of 4 calendar years is available and Assessee can claim the LTA benefit only twice during the block of 4 years means The exemption can be availed only in respect of two journeys
  12. One must take the shortest route to their destination to be eligible for LTA. If journey is performed in a circular form touching different places, the LTA exemption will be limited for the journey from the place of origin to the farthest point reached, by the shortest route.
  13. As per rule 2B , exemption under section 10(5) is subject to the following conditions prescribed by the govt.:  

Read How to Plan Income Tax Deduction under section 80C, 80CCG, 80D, 80DD, 80E,80G, 80GG to 80U

 

Different Situations

Amount Of Exemption If Journey Is Performed On Or After 1-10-1997

 

  • For journeys performed by Air

  • Where journey is performed by rail
  • Air economy fare of the national carrier (Indian Airlines or Air India) by the shortest route to the place of destination or amount spent, whichever is less
  • Air-conditioned first class rail fare by the shortest route

 

  • Where place of origin of journey and destination are connected by rail and the journey is performed by any mode of transport other than by air
  • Air-conditioned first class rail fare by the shortest route to the place of destination.

 

  • Where place of origin of journey and destination or part thereof are not connected by rail
  • (i) Where a recognised public transport system exists, the first class or deluxe class fare on such transport by the shortest route to the place of destination.

 

 

 

 

(ii) Where no recognised public transport system exists, the air-conditioned first class rail fare, for the distance of the journey by the shortest route, as if the journey has been performed by rail.

 Download Income Tax Return (ITR) 1: Income Tax Return for AY 2013-14 for Salaried Person

Reference: Section 10(5) of the Income Tax Act

(5) in the case of an individual, the value of any travel  concession or assistance received by, or due to, him,—

(a)  from his employer for himself and his family, in connection with his proceeding on leave to any place in India ;

(b) from his employer or former employer for himself and his family, in connection with his proceeding to any place in India after retirement from service or after the termination of his service,

subject to such conditions as may be prescribed (including conditions as to number of journeys and the amount which shall be exempt per head) having regard to the travel concession or assistance granted to the employees of the Central Government :

Provided that the amount exempt under this clause shall in no case exceed the amount of expenses actually incurred for the purpose of such travel.

Explanation.—For the purposes of this clause, “family”, in relation to an individual, means—

  (i) the spouse and children of the individual ; and

 (ii) the parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the individual;

Rule 2B prescribes the conditions as well as quantum of exemption, which are as follows:

Conditions to be satisfied – Conditions to be satisfied are as under:

  • The exemption is admissible on the value of any travel concession or assistance received by or due to an assessee from his employer or former employer, as the case may be, for himself and his family, in connection with his proceeding (i) on leave to any place in India, or (ii) to any place in India after the retirement from service, or (iii) to any place in India after the termination of his service.
  • The exemption is admissible in respect of actual expenditure incurred for journeys performed, not only by the assessee but also by his family.
  • For this purpose, ‘family’ means (i) the spouse and children of the assessee, and (ii) the parents, brothers and sisters of the assessee provided that they are wholly or mainly dependent on the assessee. With effect from 1-10-1997, the Central Civil Service Leave Travel Concession Rules have been amended in this respect.
  • The exemption can be availed only in respect of two journeys performed in a block of four calendar years. For this purpose, the first four-year block commenced with the calendar year 1986. Thus, the four-year blocks will be 1986-89, 1990-93, 1994-97, 1998-2001, 2002-05, 2006-09 and so on.
  • If an assessee has not availed travel concession or assistance during any of the specified four-year block periods on one of the two permitted occasions, or on both occasions, exemption can be claimed provided he avails the concession or assistance in the calendar year immediately following that block. This is popularly known as the ‘carry-over’ concession. In such cases, the exemption so availed will not be counted for purposes of regulating the future exemptions allowable for the succeeding block of four years.

Quantum of exemption.—The basic rule is that the quantum of exemption will be limited to the actual expenses incurred on the journey. This pre-supposes that, without performing any journey and incurring expenses thereon, no exemption can be claimed.

In addition to the above general limitation, the quantum of exemption will also be subject to the following maximum limits, depending upon the mode of transport used or available:

 

JOURNEYS PERFORMED ON OR AFTER 1-10-1997

 

  • For journeys performed by Air
  • Air economy fare of the national carrier (Indian Airlines or Air India) by the shortest route to the place of destination.

 

  • Where place of origin of journey and destination are connected by rail and the journey is performed by any mode of transport other than by air
  • Air-conditioned first class rail fare by the shortest route to the place of destination.

 

  • Where place of origin of journey and destination or part thereof are not connected by rail
  • (i) Where a recognised public transport system exists, the first class or deluxe class fare on such transport by the shortest route to the place of destination.

 

 

 

 

(ii) Where no recognised public transport system exists, the air-conditioned first class rail fare, for the distance of the journey by the shortest route, as if the journey has been performed by rail.

Restricted concession for children.—Under sub-rule (4) of rule 2B, inserted with effect from 1-10-1997, exemption on travel concession will not be admissible to more than two surviving children of an individual born after 1-10-1998. This restriction will not however apply in respect of children born before 1-10-1998, and also in cases where an individual, after getting one child, begets multiple children (twins/triplets/quadruplets, etc.) on the second occasion. The implications of this restriction will be as follows :

  • In respect of journeys performed on or before 1-10-1998 exemption will be admissible in respect of all the surviving children of the individual.
  • In respect of journeys performed after 1-10-1998
    • the exemption will be admissible to all surviving children born before 1-10-1998;
    • in addition, the exemption will be admissible to only two surviving children born on or after 1-10-1998. In reckoning this limit of two children, children born out of multiple births after the first child will be treated as ‘one child’ only.

It may be noted that section 2(15B) of the Act defines a ‘child’ as includes ‘a step-child and an adopted child of the individual’. Hence the aforesaid restrictions will operate in respect of step-children and adopted children also provided they are born on or after 1-10-1998.Bottom of Form


How to Calculate Income Tax on Pension Income

How to Calculate Income Tax on Pension Income or Tax Treatment of Pension Income, Income Tax on Family Pension or How to Compute Tax on Pension Income these are the general question at the time of retirement every person has it? 

Pension income can be the in the form of monthly income or onetime payment (Commuted pension) made by the employer at the time of retirement or death of an employee. In case of the Government employees onetime pension income is not taxable but for others it will be taxable subject to certain conditions given under the income tax act.

In case of monthly pension income it will be taxed at the “normal slab rates” of the income tax act. ( Check Income Tax Slab Rate https://www.vatfaq.in/income-tax-slab-income-tax-rates-for-fy-2013-14-ay-2014-15.html)

Pension Income Not Taxable for following persons

  1. Pension received from UNO by the employee or his family member is exempt
  2. Family pension received by the family member of deceased employee is taxable in the hand of family member in the head income from other sources but family pension received by family member of deceased armed force employee will be exmepted from Income Tax.
  3. Judge of supreme court and high court will be entitled to the exemption of the commuted pension

Pension Income Tax Treatment or Income Tax Calculation on Pension Income  

  1. Monthly/uncommuted pension: Taxable in case of all employees
  2. Commuted pension:

    i) Government employee
    – Exemption is available under section 10(10A)

    (Central/state/PSU/local authority/statuary Corporation)

    ii) Non-Government employee

Receiving Gratuity with pension

Not Receiving Gratuity with pension

1/3 of 100% of commuted pension is exempt

½ of 100% of commuted pension is exempt

Income Tax Treatment for Pension Scheme of Central Government Employees

Pension scheme in case of an employee joining central government on or after jan,1,2004

  • It is mandatory for persons entering the services of the CG on or after Jan.2004 to contribute 10% of salary every month towards their pension account & Govt. also contribute at the same rate
  • Salary= Basic pay + D.A.(if)
  • Contribution by CG is included in salary of employees
  • Deduction u/s 80C will not be available if deduction is claimed u/s 80CCD
  • When pension is received out of the aforesaid amount it will be chargeable to tax in the hand of family member in the head income from other sources

Reference: Section 10(19) of Income Tax Act, 1961 and Rule 2BBA of Income Tax Rules

Section 10(19) of Income Tax Act: Income Exempted from Income Tax

(19) family pension received by the widow or children or nominated heirs, as the case may be, of a member of the armed forces (including para-military forces) of the Union, where the death of such member has occurred in the course of operational duties, in such circumstances and subject to such conditions, as may be prescribed.

Circumstances and conditions for the purposes of clause (19) of section 10.

2BBA. (1) For the purposes of clause (19) of section 10, the circumstances of death of a member of the armed forces (including para-military forces) of the Union in the course of operational duties shall be the following, namely :—

(i)  acts of violence or kidnapping or attacks by terrorists or anti-social elements;

(ii)  action against extremists or anti-social elements;

(iii) enemy action in international war;

(iv) action during deployment with a peace keeping mission abroad;

(v)  border skirmishes;

(vi)  laying or clearance of mines including enemy mines as also mine sweeping operations;

(vii) explosions of mines while laying operationally oriented mine-fields or lifting or negotiation mine-fields laid by the enemy or own forces in operational areas near international borders or the line of control;

(viii) in the aid of civil power in dealing with natural calamities and rescue operations;

(ix) in the aid of civil power in quelling agitation or riots or revolts by demonstrators.

(2) It shall be certified by the Head of the Department where the deceased member of the armed forces (including para-military forces) last served, or the service headquarters, as the case may be, that the death of such member has occurred in the course of operational duties in circumstances mentioned in sub-rule (1).

 

Taxability on Leave Salary under Section 10(10AA) of Income Tax Act

Leave salary also known as leave encashment which means that employee will receive the cash for leaves which are not taken by the employees. Employee can encash his leaves during the course of employment but this amount will be fully taxable or he can encash at the time of retirement but the taxability of that amount depends on fulfillment of the certain conditions given under the income tax act.

Also Read Income Tax Calculation on Pension Income 

For Government Employees except local authorities leave encashment at the time of retirement is exempted from the tax u/s 10(10AA). While leave encashment during the service period is taxable for all the employees and its taxable as per the income tax slab rate which is applicable to that individual.

  1. At the time of services:

    Amount received Fully Taxable

  2. At the time of retirement:
    1. Government employee (central or state) – Fully exempt
    2. Non-Government employee

      Exempt least of the following:

  • Actual Receipt
  • Standard Limit=3,00,000 (maximum- reduced by an earlier exempted amount)
  • Total salary of preceding 10months from the date of retirement
  • average salary of 10months X leave credit

Calculation of Leave credit at the time of retirement

Leave entitlement- completed service X standard leave (consider max. 30 days)

Less: Leave already availed

Less: Leave encashed during the service period

Leave credit at the time of retirement

  • (Leave credit should be in according to 30 days leave of every year of actual completed services)

Note: – salary= Basic pay + DA (if) + commission (%)

Average salary= (Basic pay + D.A.(if)+ % commission of 10 months immidetly @preciding from the date of retirement)/10

Read Meaning of Basic Salary for HRA Calculation

Income from Salary

Salary means anything whether in cash or kind receivable by employee from employer in lieu of his or her past or present services.

Based on the nature of payment salary can be divided into two basic category like monetary benefits and non monetary benefits also known as perquisites, these can be sub divided into heads like basic salary, pension i.e. income receivable from the previous employer, bonus as fixed or variable, House rent allowance, dearness allowance, stock option given to employee, rent free accommodation, car etc.

Meaning of salary:

“Salary” includes the following:

  • Wages, any annuity or pension
  • Any gratuity
    • Any fees, commission, bonus
    • Any taxable allowance
    • All taxable perquisites

Income from salaries (sec. 15 or 17)

Under sec 15 the following incomes are taxable under the head salaries:

  1. The salary due from an employer or former employer to an assessee in the previous year whether paid or not.
  2. The salary paid or allowed to him in the previous year though not due (i.e. advance salary but not in the form of loan)
  3. Any arrears of salary(taxable on payment basis)

Some important points in respect of salary:

  1. Employer and employee relationship must exist(master& servant)
  2. If Employer and employee relationship not exists the remuneration is taxable in income from other sources
  3. Salary given by firm to partner is taxable under the head “Business and profession”
  4. Salary must be accrued in India
  5. Salary is taxable on due or receipt basis whichever is earlier except arrear of salary
  6. Salary surrendered by the employee to the central Govt. will not be included while computing his taxable income
  7. Salary will be deemed to accrue or arise at a place where service is rendered
  8. Salary of Govt. employee serving outside India who are citizen of India is treated as deemed to accrue or arise in India
  9. If there are more than one employer salaries received from all the employers should be clubbed (added) & taxed for the relevant previous year.

Forms of salary:

  1. Fees and commission
  2. Bonus
  3. Leave salary 10(10AA)
  4. Compensation for retrenchment 10(10B)
  5. Gratuity 10(10)
  6. Pension or annuity 10(10A)
  7. Commutation of pension
  8. Voluntary retirement compensation 10(10C)