Benefits & Consequences Of Income Tax Act Section 10(5)
Salary people are eligible for tax exemption on the leave travel allowance under this clause. There are many exceptions provided by the Income Tax Act of 1961 expressly for the salaried class. A deduction is different from an exemption in that the latter stops the amount from being counted towards taxable income. These exclusions enable companies to structure the Cost to Company (CTC) of their employees in a way that minimizes tax burden.
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Under Section 10(5) of the Income Tax Act, one such exemption is given to the salaried class and is known as the Leave Travel Allowance (LTA)/Leave Travel Concession (LTC). Whatever LTA an employee receives from their previous employer is also excluded when they retire or are fired from their job.
Allowances that fall under Section 10(5) of the Act
The amount that a company offers an employee to enable them to go to India, either with or without their family, is referred to as a leave travel allowance, or LTA. This compensation is only for the cost of taking an aircraft, train, or bus; it does not cover incidental expenses like hotel, dining, or entertainment. The amount received as LTA is occasionally exempt from income tax under Section 10(5) & Rule 2B of the Income Tax Regulations. An alternative name for this exemption is Leave Travel Concession (LTC).
Section 10(5) has been changed to specify that, subject to meeting certain criteria, the value of any travel assistance or concession received by, or due to, a person must also be excluded under this section. This revision will take effect for the assessment year beginning April 1, 2021.
Application for benefits under Section 10(5)
Under Section 10(5), a journey taken during employee time off is not taxed. According to the Income Tax Act, employees of any nationality (Indian or foreign) are eligible for this deduction. The conditions of this section are as follows:
- An employee or other person must first obtain a travel reimbursement from their current employer in order to travel within the current fiscal year.
- It needs to be delivered to the employee’s prospective or current employer before their planned trip.
An employee is entitled to a travel reimbursement from their employer while on leave anywhere in India.
Eligibility under Section 10(5) of the Income Tax Act
- Only legitimate travel is eligible for the exemption.
- Domestic travel within India is the only type of travel that qualifies. Excursions outside of the nation are not covered by LTA.
- The employee or his immediate family (spouse, children, & completely or mostly dependent parents, siblings, etc.) must be travelling together in order to be eligible for the travel exemption. Additionally, this exemption is only applicable to up to two of an employee’s children who were born on or after October 1, 1998. There are no age restrictions for kids who were born before October 1, 1998. Additionally, after a single birth, this restriction does not apply to subsequent multiple births.
Section 10(5) of the Income Tax Act: Exempting LTA for those who qualify
The exclusion only covers the employee’s actual transportation costs, such as plane tickets, train tickets, or bus fares. Incidental expenses like cabs, admissions, hotel stays, meals, etc. are not exempt from the exemption. Additionally, omitted are all LTA costs that were covered by an employer.
If a worker qualifies for an LTA of Rs. 30,000 but actually spends Rs. 20,000 on allowable travel expenditures, only Rs. 20,000 of the LTA will be tax-free; the remaining Rs. 10,000 would be regarded as pay income.
An LTA exemption only applies to the first two journeys made over a consecutive four-year period. In the first calendar year of the subsequent block, if an employee has not used the exemption for one or two travels during any of the years in a 4-year block, they may do so.
Deduction cap under Section 10(5)
- No concession granted in accordance with this clause may cost more to provide than it is worth.
- take the cheapest and most convenient domestic flight available. You will be required to pay the same price for a direct flight if you need to break up your journey.
- Take the most direct path feasible while travelling in comfort on a first-class train.
- If the origin and destination of the voyage are connected by rail & the journey is made by any mode other than air, it is a first-class AC train price via the quickest route to the destination on a bus or any other means of transportation.
- If your starting location and end destination (or at least some of it) are not connected by train, you might need to drive.
Section 10(5): How do I make an LTA request?
The LTA request procedure is often established by the company itself. Employees may be expect to submit further proof of their trip. Such as tickets, boarding cards, invoices from the travel agency, etc., by the employer’s deadline.
Although it is not required by law, it is advisable for employees to obtain proof of their business travel for their own records and to give copies to their employers in accordance with LTA policy or as required by tax authorities.
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