Leave Travel Allowance to be Tax Exempt Only for Domestic Travel

Leave travel allowance (LTA) to be tax exempt only for domestic travel

Leave Travel Allowance only for domestic journeyLeave Travel Allowance is exempt from tax only when employee has utilized LTA for travel within India and cannot be clubbed with an overseas journey. In case, an air ticket comprises Indian and overseas components, no exemption will be provided either on the entire cost or on partial Indian travel.

Section 10(5) of the Income Tax Act and Rule 2B do not stipulate that exemption is available where part of his total ticket package is spent on his overseas travel and part of his journey being within India

Facts of the Case:

  • Assessee received LTA from his employer, the State Bank of India and claimed exemption of LTA arguing that since the final destination was India, the entire airfare claimed by him should be tax exempt. His travel included visits to Singapore and Malaysia.
  • AO disallowed LTA exemption claim as section 10(5) does not allow exemption for overseas travel.
  • CIT(A) upheld AO’s orders.
  • Hence Present appeal to ITAT.

Related Provisions of Leave Travel Allowance

  • The LTA exemption is available for travel expenses (comprising air, road or rail fare) by the employee and his family for two journeys performed in a block of four calendar years, subject to fulfilling various conditions.
  • Under the tax laws, even for domestic travel, where the journey is performed in a circular form touching different places, the exemption is limited to the travel expenses that would be admissible from the place of origin to the farthest point reached in India, by the shortest route.

Held

  • The provisions of the Act are in relation to LTA for proceeding on leave to any place in India.
  • LTA is exempt from tax only when employee has utilized LTA for travel within India.
  • Nothing in Rule 2B provides assessee a liberty to claim exemption where part of his total ticket package is spent on his overseas travel and part of his journey being within India.
  • In result, assessee’s exemption claim under section 10(5) rejected.
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