Understanding Section 10(5) of the Income Tax Act: Leave Travel Concession (LTC) Exemption

Section 10(5) of the Income Tax Act: Understanding the Exemption on Leave Travel Concession

The Income Tax Act provides for various exemptions and deductions to individuals to help them reduce their tax liability. One such exemption is provided under section 10(5) of the Income Tax Act, which deals with Leave Travel Concession (LTC). This section provides an exemption to an employee for expenses incurred on travel within India, subject to certain conditions. In this blog, we will discuss the provisions of section 10(5) in detail.

What is Leave Travel Concession?

Leave Travel Concession is a benefit given by an employer to employees to travel on leave to any place in India. The purpose of this benefit is to enable employees to travel with their family and take a break from work. The employer may reimburse the actual travel expenses incurred by the employee or provide a fixed allowance to cover the expenses.

Provisions of Section 10(5) of the Income Tax Act

Section 10(5) of the Income Tax Act provides an exemption to employees for expenses incurred on travel within India. The exemption is available for two journeys in a block of four calendar years. The current block is from 2018-21. The next block is from 2022-25.

The exemption is available only for travel expenses incurred by the employee and his/her family. The family includes the spouse and children of the employee. The exemption is not available for travel expenses incurred by any other family member, such as parents or siblings.

Conditions for Availing the Exemption

To avail of the exemption under section 10(5), the following conditions must be satisfied:

1. The travel must be within India: The exemption is available only for travel within India. Travel to any place outside India is not eligible for the exemption.
2. The travel must be for leave: The exemption is available only for travel taken during the employee’s leave period. Travel undertaken for official purposes or business trips is not eligible for the exemption.
3. The exemption is available for two journeys in a block of four calendar years: The exemption is available for two journeys in a block of four calendar years. The current block is from 2018-21. The next block is from 2022-25.
4. The exemption is available only for the actual travel expenses incurred: The exemption is available only for the actual travel expenses incurred by the employee and his/her family. The exemption is not available for any other expenses incurred during the journey, such as hotel expenses or food expenses.

Let’s delve a bit deeper into some of the key aspects of Section 10(5) of the Income Tax Act.

1. Definition of “Family”: For the purpose of Section 10(5), the term “family” includes the spouse and children of the employee. It also includes parents, brothers, and sisters who are wholly or mainly dependent on the employee. However, in-laws (such as the spouse’s parents) are not included in the definition of family.
2. Block of Four Years: The exemption is available for two journeys in a block of four calendar years. The current block is from 2018-21, which means an employee can claim this exemption twice during this block. The next block is from 2022-25.
3. Mode of Travel: The exemption is available for travel by any mode of transportation, such as air, rail, or road. However, it is important to note that the exemption is available only for the travel expenses incurred and not for any other expenses incurred during the journey, such as hotel expenses or food expenses.
4. Unused LTC: If an employee is unable to utilize the exemption during the block of four years, the unutilized LTC can be carried forward to the next block of four years. However, this carry forward can be availed of only once in the next block, and it must be used before the end of the first calendar year of the next block.
5. Tax Exemption Limit: The tax exemption available under Section 10(5) is limited to the amount actually spent by the employee on travel. For instance, if an employee spends Rs. 20,000 on travel and claims an exemption for this amount, he or she will not be able to claim any additional exemption for the same journey.

Conclusion

Section 10(5) of the Income Tax Act provides an exemption to employees for expenses incurred on travel within India. The exemption is available for two journeys in a block of four calendar years, subject to certain conditions. To avail of the exemption, the travel must be for leave, within India, and the expenses must be incurred by the employee and his/her family. It is important for employees to understand the provisions of section 10(5) to take advantage of this exemption and reduce their tax liability.

Read more useful content:

• section 234e of income tax act
• section 286 of income tax act
• section 90a of income tax act
• section 40a(7) of income tax act
• section 226(3) of income tax act
• section 24 of income tax act

Frequently Asked Questions (FAQs)

Who is eligible to claim the Leave Travel Concession (LTC) exemption under Section 10(5) of the Income Tax Act?
A: Any employee who receives a Leave Travel Concession from their employer and has undertaken travel within India with their family during their leave period is eligible to claim the exemption.

What is the definition of family under Section 10(5)?
A: The definition of family includes the spouse and children of the employee. It also includes parents, brothers, and sisters who are wholly or mainly dependent on the employee.

How many times can an employee claim the exemption under Section 10(5) in a block of four years?
A: An employee can claim the exemption twice in a block of four years.

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What is the current block of four years for claiming the exemption under Section 10(5)?
A: The current block of four years is from 2018-21.

Can the LTC exemption be claimed for travel outside India?
A: No, the exemption is available only for travel within India.

What is the mode of travel eligible for the LTC exemption under Section 10(5)?
A: The exemption is available for travel by any mode of transportation, such as air, rail, or road.

Can an employee claim the exemption for hotel expenses or food expenses incurred during the journey?
A: No, the exemption is available only for the actual travel expenses incurred by the employee and his/her family.

Can an employee carry forward the unutilized LTC to the next block of four years?
A: Yes, an employee can carry forward the unutilized LTC to the next block of four years, but it can be availed of only once in the next block.

Is there a limit on the tax exemption available under Section 10(5)?
A: Yes, the tax exemption available under Section 10(5) is limited to the amount actually spent by the employee on travel.

Do employees need to submit any documents to claim the LTC exemption?
A: Yes, employees need to submit proof of travel, such as travel tickets and boarding passes, to claim the LTC exemption.