De-Tax. Going on a holiday? Get your tax break

The taxman does not want you to be all work and no play. He encourages you to go on holidays. This, he does, by giving a tax break on the leave travel allowance (LTA) you get from your employer. But like all things tax, this largesse, given under Section 10(5) of the Income Tax Act, comes with many ifs and buts.

First, the LTA exempted from tax is limited to the travel expense for yourself and your family. So, if you get LTA of ₹15,000 a year from your employer, but spend just ₹10,000 on travel, you get the tax break only on ₹10,000; the remaining ₹5,000 will be taxable.

Most employers insist on your submitting travel bills to consider the tax break in the salary calculation. But some are fine with just your expense declaration.

It’s a good idea though to keep the papers handy in such cases; the taxman is known to have a soft corner for documentary proof and could ask you to produce them later.

Next, you may think of the world as one family — vasudhaiva kutumbakam . But the taxman, kind though he is, is not as broad-minded.

Family, in his universe, means spouse, children, parents, brothers and sisters who are dependent on you. So, there’s no tax break if you buy tickets for your favourite cousin or not-so-favourite brother-in-law. Also, there’s no break if your parents, brothers or sisters are not dependent on you.

And yes, you get the tax break only for two children if they are born after October 1, 1998. There’s no such restriction though if the kids are born before this date, or if you had more than one child (twins, triplets, and so on) after the first child. Thoughtful indeed.

Now, if you are plotting for some ‘me-time’ by sending the spouse and pesky kids off on a holiday, don’t expect any tax break. The taxman wants you to bond as a family, and the LTA exemption is allowed only if you are part of the travel.

You can, of course, travel alone sans family and get the tax break (and me-time too) if you so desire. Travel broadens the mind and you may wish to broaden it more by holidaying in foreign locales. Good idea, but don’t expect the LTA tax exemption. It’s available only on travel expenses incurred within India.

The taxman wants you to have fun, but not too much. You may be getting LTA from your employer annually and also be going on holiday every year. But the tax break can be claimed only twice in a block of four calendar years.

Here’s an example. The current block for LTA tax break purpose is from January 2014 to December 2017. If you have already claimed the break in 2014 and 2015, you cannot claim it again in 2016 and 2017. If you have claimed it just once, say, in 2015, then you can do so again, once in 2016 or in 2017. And if you haven’t claimed it at all so far, you can do so both in 2016 and in 2017.

One more thing — only one LTA tax break can be claimed in a calendar year. So, if you go on holiday twice in a year, you get the break only on the travel cost of one trip.

Now, what if you are a really busy soul with no time for a holiday — so, you do not claim the LTA tax break or claim it just once in the four-year block period.

The taxman, as always, is kind. He lets you carry over one tax break to the next block period, but you must use it in the first year of the block.

So, effectively, you can claim three LTA tax breaks in the next block period (January 2018 to December 2021).

The taxman also sticks to the short and the narrow when it comes to doling out the tax goodie.

Sure, he won’t stop you from flying first class or hiring a luxury car to your destination of choice. It’s your money, after all. But the tax break is restricted to the cost of basic travel comforts.

So, the economy air fare of the national carrier (though you can fly any airline) or first class AC rail fare (or its equivalent on other transport modes if there is no rail connectivity) is what you get as the maximum exemption.

Also, this is limited to the cost of travel via shortest route from the starting point to the farthest point in the journey, and back.

If your actual travel cost is less than these limits, the tax benefit is restricted to what you spend.

Also, you don’t get any break on the cost of food, stay, local conveyance and other expenses incurred on the trip.