LTA exemption in new tax regime: Can you claim leave travel allowance exemption in new tax regime or is it taxable?

Economic Times

2 days ago

From April 1, 2025, the new tax regime has become more attractive than the old tax regime for a larger number of taxpayers. This is because zero tax is payable on net taxable income up to Rs 12 lakh for FY 2025-26 under the new tax regime. Taxpayers often look for deductions from their gross income to reduce taxable income to Rs 12 lakh or below in order to pay zero tax under the new tax regime. Many would like to know if they can claim leave travel allowance (LTA) deduction via travel bills under the new tax regime or not.ET Wealth online tells you if you can claim exemption on leave travel allowance for the FY 2025-26 under the new tax regime.
According to income tax rules, LTA exemption is not available under the new tax regime. An individual opting for the new tax regime for FY 2025-26 and getting LTA from their employer cannot claim exemption using it.
The tax exemption on LTA is not available under the new tax regime. Hence, if you have received LTA as a part of Cost-to-Company (CTC) and opt for the new tax regime for TDS on salary for FY 2025-26, then LTA will be taxable even if you submit bills of travel. For private sector employees, LTA tax exemption is available if they opt for the old tax regime for FY 2025-26 to pay tax. However, specific rules prescribed under the Income Tax Act, 1961, must be followed to claim LTA exemption under the old tax regime.
In the old tax regime, LTA exemption is available under Section 10(5) of the Income Tax Act.Yes, the LTA exemption is available twice in a four-year block. The current block extends from January 1, 2022, to December 31, 2025. A taxpayer can claim LTA exemption on a maximum of two journeys in this block.If an employee is unable to undertake a journey/claim LTA in the block, then one journey/LTA can be carried forward to the first year of the next block.
Abhishek Soni, CEO, Tax2Win.in - an ITR filing website, says, "The LTA exemption rules for government employees are not different vis-à-vis those for private sector employees. The income tax laws allow government employees to claim LTA exemption twice in a block of four years, either to visit their hometown or to any place in India. Further, this exemption will be available if the government employee opts for the old tax regime in a particular financial year. No LTA exemption can be claimed under the new tax regime."Soni explains the conditions that a taxpayer must meet to claim LTA exemption under the old tax regime.
a) LTA part of salary: An employee must be receiving LTA as part of his/her salary from his/her employer.
b) Submission of travel bills: Employees must submit the bills and other travel documents to their employer before the date specified by the employer for doing so, to claim tax exemption in a particular financial year.
c) No international vacation: The LTA exemption is available for travel within India and cannot be claimed for international travel.
d) Cost of travelling for specific family members: The LTA tax exemption can also be claimed for cost of travel of accompanying family members. For this purpose, family members can include spouse, children, dependent parents, and dependent siblings.
e) Covers only mode of travel: LTA exemption rules cover only cost incurred for actual transportation for travel, including by air, train, or road. LTA exemption is not allowed for cost of hotel bookings and food expenses during the trip.
The maximum LTA exemption that can be claimed depends on the actual cost incurred on transportation and the LTA amount allowed by the employer. Soni says, "The LTA exemption is allowed for the cost of the shortest journey (either by bus, train or air) from the employee's place of residence to the travel destination and back. If the LTA offered by the employer is less than the actual cost incurred on transportation, the exemption would be limited to the LTA allowed by the employer and not the actual costs incurred."