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Friday, October 18, 2013

Leave travel concession LTC exemption rule 2B u/s 10(5) of income tax

The following are the important points, to be taken into consideration, for claiming exemption u/s 10(5) of the Act read with Rule 2B of the Rules:

1. Definition - Value of LTC received by or due to an individual from his present or previous employer, as the case may be, for himself and his family in connection with his proceeding on leave to any place in India or to any place in India after retirement or termination from/of service.

2. Number of Trips – The exemption shall be available in respect of 2 journeys performed in the block of 4 calendar years.

• Without performing any journey and incurring expenses thereon, no exemption can be claimed.

• The quantum of exemption will be subject to the following maximum limits for journeys performed on or after 01.10.1997

S no.
Journey Performed by
Exemption Limit
1
Air
Air Economy fare of the national carrier (Air India) by
the shortest route to the place of destination
2
Places connected by rai and journey performed by any mode other than by air.
First Class Air conditioned rail fare by the shortest route
to the place of destination
3
Place of origin and
destination or part
thereof not connected by
rail.
a) Where public transport system exists, first class or
deluxe class fare on such transport by the shortest route to the place of destination.
b) Where no public transport system exists, first class A/C
rail fare, for the distance of the journey by the shortest
route, as if the journey has been performed by rail

o This exemption is limited to the actual expenses incurred on the journey which in turn is strictly limited to expenses on air fare, rail fare and bus fare only. No other expenses like local conveyance, sight-seeing expense etc., shall qualify for exemption.

o Where the journey is performed in a circuitous route, the exemption is limited to what is admissible by the shortest route. Likewise, where the journey is performed in a circular form touching different places, the exemption is limited to what is admissible for the journey from the place of origin to the farthest point reached in India, by the shortest route.

• Restriction on children – The exemption will not be available to more than 2 surviving children of an individual born after 01.10.1998. This restriction shall not apply in respect of children born before 01.10.1998 and also in case of multiple births after one child. 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.

• Definition of Family – As per the provisions of the Rules, family means:
o Spouse and children of the individual.
o Parents, brothers and sisters who are wholly or mainly dependent on the individual.

• Foreign Travel – As per the provisions of the Rules, exemption is not allowable in case of travel abroad.

• Obligation of the employer –The employer has to satisfy the obligation that leave travel (fare) concession is not taxable in view of section 10(5) the employer is not only required to be satisfied about the provisions of the said clause but also to keep and preserve evidence in support thereof.

Some important points to be considered are as under:
1. It is uniform for all employees

2. Where an employee does not avail LTC, either one or on both the occasions during the block of 4 calendar years, the value of LTC first availed during the first calendar year of the immediately succeeding block shall be eligible for exemption in lieu of exemption not availed during the preceding block Only one trip can be carried forward to be availed in the immediately succeeding block.

3. Quantum of Exemption – The basic rule is that quantum of exemption will be limited to the actual expense incurred on the journey.

Any Leave encashed for the purpose of Leave travel or home travel concession is taxable.
Tags-ltc exemption,leave travel concession,leave travel allowance,ltc income tax exemption,income tax exemption on ltc

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