Important Keyword: Form 12BB, LTA, Salary Components, Salary Income.
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LTA (Leave Travel Allowance): Meaning, Rules, Tax Exemptions and Conditions to claim
Traveling indeed provides numerous benefits, offering a break from the daily grind and contributing to reduced stress levels and enhanced mental and emotional well-being. However, embarking on vacations can sometimes strain the budget. To alleviate this financial burden, the Income Tax Act extends several exemptions to salaried individuals for such expenses. One notable exemption is the Leave Travel Allowance (LTA). LTA represents an allowance provided by employers to their employees for vacations within India.
LTA: Meaning
Leave Travel Allowance (LTA) stands as an allowance integral to an employee’s Cost to Company (CTC), facilitating travel either individually or with family members to any destination within India. This benefit can be availed under the following circumstances:
While on authorized leave.
Following retirement from service.
After termination of service.
The Income Tax Act delineates specific guidelines for seeking exemption on LTA.
Conditions to Claim LTA Exemption
Section 10(5) of the Income Tax Act, coupled with Rule 2B, delineates the conditions and limitations for the exemption of leave travel allowance:
The leave travel allowance should be an integral component of the employee’s salary structure.
Exemption is applicable for the actual expenses incurred by the employee and their family solely for domestic travel.
The definition of family for the purpose of leave travel allowance includes the spouse, children, as well as parents, brothers, and sisters who are wholly or mostly dependent on the employee.
The exemption can be claimed for a maximum of two children born after 01/10/1998, without any restrictions for children born before this date.
The exemption covers only the travel expenses incurred during the trip, including travel by rail, air, or any other public transport. Expenses related to hotel accommodation, food, etc., are not included.
Exemption is available for only two trips in a block of four calendar years. The current block for leave travel spans from 2022 to 2025.
If the exemption is not utilized during the block period, it can be carried over to the next block and utilized in the first year of the subsequent block.
Let’s understand with an example:
Certainly, if an employee does not utilize their Leave Travel Allowance (LTA) during the block of 2018-2021, they are permitted to carry forward a maximum of one unutilized LTA to be utilized in the subsequent block of 2022-2025. Therefore, if the employee avails the LTA in April 2022, it will be considered for the block of 2018-2021. Consequently, they will be eligible for exemption concerning that journey, and two additional journeys can be availed for the block of 2022-2025.
Year of Journey
LTA Block year 2018-2021
LTA Block year 2022-2025
September 2020
Exemption claimed in September 2020
Not Applicable
July 2021
Not Claimed
An exemption can be claimed in 2022 (carried over from the previous block)
May 2023
Not Applicable
An Exemption can be claimed in May 2023
August 2024
Not Applicable
Exemption can be claimed in August 2024
Leave Travel Exemption: Eligibility
The Leave Travel Allowance (LTA) exemption is solely applicable to the actual travel expenses incurred. Other expenses such as sightseeing, hotel accommodation, and food are not eligible for this exemption. Moreover, the exemption is restricted to the LTA amount provided by the employer. For instance, if the actual expense incurred amounts to INR 50,000, but the LTA included in the salary is INR 35,000, then the maximum exemption available would be INR 35,000 only.
Exemption when various modes of transport are used for travel
Sr. No.
Journey Performed By
Limit
1.
Air
The actual amount spent is restricted to airfare of economy class national carrier by the shortest route possible
2.
Any other mode:
(i) Where rail service is available
(ii) Where rail services are not available
(a) a recognised public transport system exists
(b) no recognised public transport system exists
The actual amount spent (mode other than air) is restricted to the cost of travel in first class A.C. through rail by the shortest route possible
The actual amount spent is restricted to airfare of economy class national carrier by the shortest route possible
The actual amount spent is restricted to first class or deluxe class fare by the shortest route possible
The actual amount spent is restricted to first class or deluxe class fare by the shortest route possible
3.
Multi-Destination
The exemption available will be for the travel cost eligible from the place of origin to the farthest location
How to Claim Exemption on Leave Travel Allowance?
To claim the Leave Travel Allowance (LTA) exemption, employees need to furnish details in Form 12BB and provide supporting evidence. This can include boarding passes, air tickets, train tickets, and invoices from travel agents. These documents serve as proof of the journey undertaken, and employees should submit them to their employers for verification and processing of the LTA exemption.
Important Keyword: Conveyance Allowance, Salary Components, Salary Income, Transport Allowance.
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Transport & Conveyance Allowance – Taxability & Exemptions
In an employee’s compensation package, the basic salary holds significant importance, serving as the foundation of their earnings. Alongside this fundamental component, employers often include various allowances like House Rent Allowance (HRA), Leave Travel Allowance (LTA), transport allowance, and conveyance allowance. It’s essential to understand the distinction between conveyance allowance and transport allowance, as well as the rules governing exemptions.
Conveyance allowance is typically granted to cover the costs associated with an employee’s daily commute to and from work. This allowance is usually a fixed amount provided by the employer on a regular basis, such as monthly, to help alleviate the financial burden of transportation.
On the other hand, transport allowance is designed to offset expenses related to commuting between an employee’s residence and their workplace. Unlike conveyance allowance, which focuses on daily commuting, transport allowance encompasses broader transportation expenses, including regular travel between home and office.
When it comes to claiming exemptions for conveyance allowance, certain rules must be followed. The exemption is available if the conveyance allowance is provided specifically to cover expenses incurred during the course of employment-related duties. However, it’s important to note that conveyance allowance becomes fully taxable if it is not utilized for business-related travel purposes.
For transport allowance, the exemption rules differ. As per the provisions of the Income Tax Act, transport allowance of up to INR 1,600 per month is eligible for exemption from taxation. It’s worth noting that this exemption applies exclusively to salaried employees and does not extend to individuals receiving travel benefits as part of their overall compensation package.
What is the meaning of Conveyance Allowance and Transport Allowance?
Transport allowance, as per section 10(14) of the Income Tax Act, is allocated to employees to offset the expenses incurred during their daily commute between their residence and workplace, and vice versa. Alternatively, it may be utilized for personal expenditure for individuals in the transport business who do not receive a daily allowance.
Conversely, conveyance allowance, governed by section 10(45) of the Income Tax Act, is an allowance extended to taxpayers earning a salary to cover transportation expenses incurred during official duties. Typically, this allowance is granted when the employer does not offer transportation services to the employees.
Limit for Transport Allowance Exemption
Section 10(14) with Rule 2BB provides conditions for transport allowance exemption. The following table explains the amount of exemption:
Particulars
Exemption limit
Transport allowance for commuting from place of residence to place of duty (with effect from FY 2018-19 no such separate transport allowance is allowed)
INR 1,600 per month or INR 19,200 per annum
Transport allowance for commuting from place of residence to place of duty for an employee who is physically challenged such as blind/deaf/dumb or orthopedically handicapped with disability of lower extremities
INR 3,200 per month or INR 38,400 per annum
Transport allowance for employees of transport business for meeting personal expenditure during the running of such transport
The exemption amount shall be lower of following: a) 70% of such allowance; or b) INR 10,000 per month
Until the financial year 2014-15, the exemption limit for transport allowance stood at Rs. 800 per month (INR 9,600 per annum). However, in Budget 2015, this limit was doubled to Rs. 1,600 per month (INR 19,200 per annum). This increase was implemented to offer tax relief to middle-class individuals who commute regularly.
Update in the Finance Act, 2019
The Finance Act of 2018 brought about a standard deduction of INR 40,000, which was later increased to INR 50,000 in the Finance Act of 2019. This adjustment replaced the earlier provisions for a transport allowance of INR 1,600 per month and a medical allowance of INR 15,000. Effective from the financial year 2019-20, this change means that employees, except for physically challenged individuals and those in the transport business, no longer receive a separate transport allowance of INR 1,600 per month.
Let’s understand with an example:
Particulars
Upto F.Y 2017-18 (Amount in INR)
For F.Y 2018-19 (Amount in INR)
From F.Y 2019-20 onwards (Amount in INR)
Basic Salary
5,20,000
5,20,000
5,20,000
Transport allowance (Received as a part of Salary)
20,000
20,000
20,000
Transport allowance exemption
(19,200)
NA
NA
Net Salary
5,20,800
5,40,000
5,40,000
Standard Deduction
NA
(40,000)
(50,000)
Net Taxable Salary
5,20,800
5,00,000
4,90,000
Limit for Conveyance Allowance Exemption
There is no cap on the conveyance a company can offer to its employees. As per the income tax regulations, employees can claim conveyance allowance exemption for the amount actually spent on official duties. Due to these exemption criteria, companies typically reimburse this allowance based on actual expenses incurred. Thus, if an employee pays for transportation expenses related to official duties, the company reimburses the same amount upon submission of expense proof.
Exemption criteria under the New Tax Regime
Starting from the fiscal year 2020-21, the government offers taxpayers the choice to opt for the new tax regime designed for individual and HUF taxpayers. Under this new regime, there are flat tax rates without any deductions or exemptions. Taxpayers cannot claim deductions for investments aimed at tax savings. However, the new tax regime permits individuals to claim the following tax-exempt allowances:
Allowance for Travel Expenses: This allowance is provided by the employer to cover the expenses of travel during tours or transfers. It encompasses expenses such as airfare, rail fare, and other transportation costs incurred by the employee.
Daily Allowance: Any allowance provided by the employer to cover the ordinary daily expenses incurred by an employee while away from their usual place of duty. This allowance is applicable during tours or periods of travel associated with transfers. It covers expenses for food and other daily necessities incurred by the employee while on the move.
Conveyance Allowance: This allowance is provided to cover conveyance expenses incurred by the employee while performing official duties. However, the employer should not offer free conveyance to the employee. This allowance encompasses expenses related to travelling while undertaking official duties.
Important Keyword: Medical Allowance, Salary Components, Salary Income.
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Medical Reimbursement: Exemption & Claim
What is Medical Reimbursement?
It is a valuable perk offered by employers to cover the medical expenses of their employees. Given the increasing stress and long hours of work in today’s environment, providing health benefits has become essential. This reimbursement is designed to cover medical costs incurred by employees, their spouses, or dependent family members. Importantly, under the provisions of the Income Tax Act, reimbursements qualify for tax benefits.
Medical Allowance vs Medical Reimbursement
Medical allowance and reimbursement are often used interchangeably, but they have distinct tax implications.
Medical allowance is a monthly component of the salary, fully taxable regardless of whether the employee submits any expense proof. It’s a fixed amount paid monthly, forming part of the overall salary.
On the other hand, it is exempt from tax up to Rs. 15,000 per year under section 17(2) of the Income Tax Act. This reimbursement is provided against actual medical expenses incurred by the employee, subject to submission of valid bills or proof of expenditure.
Who is Eligible to Claim Medical Reimbursement?
Under the Income Tax Act, certain conditions determine whether medical expenses reimbursed by the employer are not considered as a prerequisite in the hands of the employee:
Medical Treatment: The employee must have incurred the expenses on medical treatment.
Treatment for Self or Family: The medical expenses should be for the treatment of the employee or their family members.
Reimbursement by Employer: The amount must be reimbursed by the employer.
Limit of Reimbursement: The reimbursement amount provided by the employer should not exceed INR 15,000 in the financial year.
How to claim Medical Reimbursement?
To claim an exemption for medical reimbursement, an employee needs to provide proof of medical expenses incurred. This can include bills related to medicines, medical checkups, consultation fees, etc., for the employee or their family members. Family, for this purpose, includes the spouse and children, as well as parents, brothers, and sisters who are dependent on the employee.
There are no restrictions on the type of medical system, meaning expenses related to allopathy, homeopathy, or any other form of treatment are eligible.
It is not taxable if the treatment occurs in certain facilities:
Hospitals or clinics maintained by the employer.
Hospitals or clinics maintained by the state government, central government, or local authority.
Facilities approved by the government.
Hospitals approved by the Chief Commissioner of Income Tax.
What Amount can be Claimed?
The employee can take the tax benefit of the expenditure incurred by him limited to INR 15,000/-. The exemption is available only on the reimbursement of actual expenses that are incurred on medical bills. An employer can only reimburse what is actually spent by the employee.
Important Keyword: Dearness Allowance, Salary Components, Salary Income.
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Dearness Allowance (DA): Rules, Exemptions, and Calculations
In India, the employment landscape encompasses both the private and public sectors. Recent estimates suggest that out of the 4 crore salaried employees in the country, approximately 50 lakh are government employees, with an additional 68 lakh comprising government pensioners, including family pensioners. Among the various components of salary, Dearness Allowance (DA) holds significance. It is exclusively provided to government and private sector employees to offset the impact of inflation on their living expenses.
What is Dearness Allowance?
DA is an integral part of the salary structure designed to mitigate the effects of inflation. It is disbursed to government employees to counteract the rising cost of living. The allowance is tailored to suit the location of the employee, whether in urban, semi-urban, or rural areas. DA is exclusively provided to:
Central Government Employees,
Public Sector Employees, and
Pensioners of the Central Government.
In India, the rate of DA is determined by the Pay Commission. This commission is responsible for assessing and adjusting the salaries of central and public sector employees, taking into account various components that constitute their overall remuneration package.
Types of DA
DA is categorized into two main types:
Industrial Dearness Allowance (IDA): IDA is relevant for Public Sector employees. It undergoes quarterly revisions, which are contingent upon the prevailing inflation rates.
Variable Dearness Allowance (VDA): VDA is applicable to Central Government employees. It sees updates every six months, aligning with the fluctuations in inflation.
The government sets the VDA, maintaining its consistency until adjustments are made to the basic minimum wages.
How to Calculate DA?
DA is a crucial component of the employee’s salary structure, calculated as a fixed percentage of the Basic Salary. Its calculation is closely linked to the employee’s geographical location, with separate indices for urban, semi-urban, and rural sectors in India. Consequently, DA rates vary for employees in each sector. The calculation formula differs for Central Government and Public Sector employees:
For Central Government Employees:
DA %=[(Average of AICPI(Base year 2001=100) for the past 12 months−115.76115.76)]×100DA %=[(115.76Average of AICPI(Base year 2001=100) for the past 12 months−115.76)]×100
Here, AICPI refers to the All India Consumer Price Index.
For Public Sector Employees:
DA %=[(Average of AICPI(Base year 2001=100) for the past 12 months−126.33126.33)]×100DA % =[(126.33Average of AICPI(Base year 2001=100) for the past 12 months−126.33)]×100
The Pay Commissions play a crucial role in determining DA. They assess and adjust the salaries of public sector employees based on various salary components, including DA. This consideration is evident in subsequent pay commission reports, where every factor influencing salary computation, including the periodic review and adjustment of the multiplication factor for DA calculation, is thoroughly examined.
Taxability of DA
DA is fully taxable for employees and is considered part of their salary income under Section 17(1) of the Income Tax Act. When filing income tax returns (ITR), taxpayers with salary income up to INR 50,00,000 can utilize ITR 1.
Dearness Allowance for Pensioners
Pensioners, retired employees of the central government, receive individual or family pensions. Like active employees, pensioners’ DA is calculated as a percentage of their Basic Pension. Whenever the Pay Commission introduces a new salary structure, pensions are also revised accordingly.
Important Keyword: Income Tax, Professional Tax, Salary Components, Salary Income.
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Profession Tax: Meaning, Rates, and Applicability
If you’re employed, you’ve probably noticed a line item for profession tax deduction on your monthly salary slips or Form 16. Despite its name, professional tax isn’t exclusive to certain professions; it applies to all occupations, including freelancers, professionals, and business owners. This tax is imposed by state governments on individuals engaged in various professions, trades, or employments, provided their income surpasses a specified threshold. Understanding why it’s imposed and how it differs from income tax is crucial.
Professional tax serves as a source of revenue for state governments, contributing to various public welfare initiatives and infrastructure development projects. Unlike income tax, which is levied by the central government, professional tax falls under the purview of state governments. It’s designed to ensure that individuals benefiting from state-provided services and infrastructure contribute their fair share towards their maintenance and improvement.
One key distinction between professional tax and income tax lies in their jurisdiction and allocation of funds. While income tax revenue is primarily allocated to the central government, professional tax revenue is retained by the respective state governments. Additionally, professional tax rates and thresholds may vary across different states, reflecting the varying fiscal priorities and economic conditions.
What is Profession Tax?
Professional tax, administered by state governments, stands as a vital revenue stream, although some states opt not to impose it. This tax serves as a means for enhancing services and amenities for professionals within the state. Empowered by lawmaking capabilities, state governments regulate professional tax, which your employer remits to the state treasury on your behalf. The deducted amount typically hovers around INR 200, but this figure varies among states.
Who is Responsible for deducting Profession Tax?
For salaried individuals and wage earners, it’s the employer’s responsibility to deduct professional tax monthly. To do so, the employer must secure both the Professional Tax Registration Certificate, enabling tax payment on their trade or profession, and the Professional Tax Enrollment Certificate, facilitating tax deduction from employees’ salaries. Self-employed individuals conducting their trade or profession independently are obligated to remit the tax directly to the state government if they fall within the professional tax purview.
Profession Tax Slab
In Maharashtra, the professional tax slabs are as follows:
Monthly Salary / Wages Professional Tax Per Month Up to INR 7,500 Nil INR 7,501 to INR 10,000 INR 175 INR 10,001 and above INR 200
Income per month (INR)
Tax per month in (INR)
Up to 7500 for Men
Nil
Up to 10000 for Women
Nil
7501 to 10000 for Men
175
More than 10000
200 ( And 300 for February)
Gujarat (Effective from 01/04/2022)
Income per month (INR)
Tax per month (INR)
Up to 12000
Nil
More than 12000
200
Karnataka
Income per month (INR)
Tax per month (INR)
Up to 15000
Nil
More than 15000
200
Tamil Nadu (Effective from 01/04/2022)
Income per month (INR)
Tax per month (INR)
Upto 21000
Nil
21,001 to 30,000
135
30,001 to 45,000
315
45,001 to 60,000
690
60,001 to 75,000
1025
More than 75,000
1250
Consequences of not getting registered for Professional Tax
Failure to register for professional tax can lead to penalties, and the severity of these penalties varies depending on the regulations of the respective state. Penalties may include fines or interest charges for the duration of non-registration. Additionally, failure to pay the tax on time or delayed payments can incur an additional 10% tax.
Procedure to Pay Professional Tax
Professional tax can be paid through both online and offline modes. The frequency of return filing, whether monthly, annually, or semi-annually, is determined by the laws of the state in which the individual or entity is liable to pay the tax.
