Disclaimer: This article is for informational purposes only and should not be considered tax or financial advice. Please consult a qualified professional for personalized guidance.
Leave Travel Allowance (LTA) is a popular tax-exempt benefit provided by employers to their employees for travel expenses within India. Under LTA, employees can claim tax exemption on travel expenses for themselves and their family when they take a leave for a vacation. However, due to the pandemic, many employees could not travel, leading the government to introduce the LTC Cash Voucher Scheme as an alternative tax-saving option.
While both LTA and Leave Travel Allowance Scheme provide tax benefits, they differ in terms of eligibility, usage, and tax exemptions. This article explains how both schemes work and helps you decide which one is better for tax savings.
What is Leave Travel Allowance (LTA)?
Leave Travel Allowance is a tax-exempt allowance that employers provide to employees to cover travel expenses for vacations within India. The exemption is available under Section 10(5) of the Income Tax Act and is applicable for domestic travel costs incurred by the employee and their family.
Key Features of LTA:
- Covers only travel expenses (airfare, train tickets, or bus fares).
- Can be claimed only for travel within India.
- Available twice in a block of four years.
- Cannot be claimed for food, hotel stays, or sightseeing.
- Requires actual travel proof like tickets and invoices.
How LTA Tax Exemption Works?
Employees must submit proof of travel expenses to their employer. The tax exemption is limited to the actual cost of travel or the Leave Travel Allowance, amount received, whichever is lower. The exemption is available for a maximum of two journeys in a block of four years. The current block is 2022-2025. If an employee does not utilize Leave Travel Allowance, in one block, they can carry it forward to the next block.
What is the LTC Cash Voucher Scheme?
The Leave Travel Allowance Cash Voucher Scheme was introduced in 2020 as a temporary tax-saving option for employees who could not travel due to COVID-19 restrictions. Instead of taking a vacation, employees could spend money on eligible goods and services and still claim tax benefits.
Key Features:
- Replaces actual travel with spending on goods and services.
- Employees must spend three times their eligible tax exemption amount.
- Purchases must be made on GST-compliant goods or services with at least 12% GST.
- Payments must be made digitally (no cash transactions).
- Available for both government and private sector employees.
How does their Tax Benefit Work?
If an employee was eligible for LTA but could not travel, they could still claim a tax exemption by spending three times their eligible Leave Travel Allowance amount on specific purchases. The exemption was limited to the tax exemption amount received from the employer.
For example, if an employee had a tax exemption of ₹50,000, they needed to spend ₹1,50,000 on GST-compliant goods or services to claim full exemption.
LTA vs. LTC Cash Voucher Scheme: Key Differences
| Feature | LTA | LTC Cash Voucher Scheme |
| Nature of Benefit | Tax exemption on actual travel expenses | Tax exemption on GST-compliant purchases |
| Travel Requirement | Mandatory | Not required |
| Eligible Expenses | Travel tickets only | Goods/services with 12%+ GST |
| Claim Frequency | Twice in a block of 4 years | One-time scheme (2020-21) |
| Payment Mode | No restriction | Digital payments only |
| Employer Support | Employer must offer LTA | The employer must opt into the scheme |
Which One is Better for Tax Savings?
LTA is Better If:
- You frequently travel within India.
- Your employer provides tax-exempt benefits.
- You want a long-term tax-saving option.
- You have planned vacations that qualify for an exemption.
LTC Cash Voucher Scheme Was Better If:
- You were unable to travel due to restrictions.
- You had unutilized tax exemptions and wanted to claim tax benefits.
- You were willing to spend on eligible GST-compliant goods.
- Your employer opted into the scheme before the deadline.
Since the LTC was a temporary measure, it is no longer available. However, tax exemptions under the LTA or LTC Scheme remain effective tax-saving options for employees who travel within India.
How to Claim LTA Tax Exemption?
- Check your eligibility: Ensure that your employer provides LTA benefits in your salary package.
- Plan your trip: Travel within India using air, rail, or road transport.
- Keep valid proof: Maintain tickets, boarding passes, and invoices.
- Submit documents: Provide the necessary proof to your employer within the financial year.
- Claim tax exemption: Your employer will adjust the exemption in your Form 16.
Final Thoughts: Should You Use LTA for Tax Savings?
The LTA or LTC Scheme remains one of the most effective tax-saving options for salaried individuals who travel within India. While the LTC Scheme was a good alternative during the pandemic, it was a one-time benefit and is no longer available. If you are eligible for tax exemptions under the LTA or LTC Scheme, plan your travel strategically to maximize tax savings while enjoying a vacation.
