How is income tax calculated on LTC (Leave Travel Concession) or LTA (Leave Travel Allowance)?

✅ Relevant Legal Provisions:

• Section 10(5) of the Income Tax Act, 1961

• Rule 2B of the Income Tax Rules, 1962

📜 Bare Act Extract – Section 10(5):

“In computing the total income of a previous year of an individual, the value of any travel concession or assistance received by, or due to, him—
(a) from his employer for himself and his family;
(b) in connection with his proceeding on leave to any place in India—
shall be exempt from income tax subject to conditions prescribed.”

📜 Rule 2B – Conditions for Exemption:

1. The exemption is available only for travel within India.

2. The exemption applies to actual travel fare, not for other expenses like sightseeing, food, or hotel stays.

3. It can be claimed twice in a block of 4 calendar years (current block: 2022–2025).

4. Exemption allowed for:

   • Air travel (economy fare of national carrier)

   • Rail fare (AC first class)

   • Bus fare (deluxe class, if rail/air not available)

📘 Family Definition (Explanation to Section 10(5)):

Includes:

• Spouse

• Children (maximum of 2 children born after 1 October 1998)

• Parents, brothers and sisters wholly or mainly dependent on the employee

🧮 Tax Calculation – Step-by-Step:

🧾 Illustration:

• LTA received: ₹40,000

• Actual travel (AC train) fare for eligible family: ₹25,000

• Exemption allowed: ₹25,000

• Taxable Amount: ₹15,000

📌 Other Key Points:

• Proof of travel (tickets, boarding passes, etc.) must be retained.

• Unused LTC in a block? You can carry forward 1 travel to the next block, and claim it in the first year only.

• If LTC is encashed without travel, it becomes fully taxable.

✅ Conclusion:

Under Section 10(5) read with Rule 2B, LTA/LTC is exempt from income tax to the extent of eligible travel fare for journeys within India. Any excess amount or non-travel expenses reimbursed are fully taxable.