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Proof of travel not required for claiming LTA: Supreme Court

Employers, while assessing the conveyance and leave & travel allowance (LTA) claims of their staff, are under no statutory obligation to collect supporting evidence and furnish them to tax authorities, the Supreme Court said on Wednesday. A bench comprising Justice SH Kapadia and Justice Aftab Alam said that assessee employers are under no statutory obligation to collect bills and details to prove that the employees had utilized the amounts obtained against these claims on travel and related expenses. According to prevailing rules, if claims on LTA and conveyance are not supported by journey bills, they would be taxed. For instance, on an LTA allowance of Rs 1 lakh, if documentary proof such as air tickets, taxi vouchers and other public transport bills are submitted only for Rs 50,000, then tax is applicable on the rest of the amount. Regardless of the amount an executive is entitled to as LTA, tax laws allow air tickets only in the domestic sector for the claim. The apex court order came in a plea by companies including Larsen &Toubro and ITI. In its defense, the revenue department had argued that assessee companies were under statutory obligation under Income Tax Act, 1961, and relevant rules, to collect documentary proof to show that their employee(s) had actually utilized the amount paid towards the leave travel concession and conveyance allowance. Rejecting the plea, the court in its order said: The beneficiary of exemption under Section 10(5) (of the Income Tax Act) is an individual employee. There is no circular of Central Board of Direct Taxes (CBDT) requiring the employer under Section 192 to collect and examine the supporting evidence to the declaration to be submitted by an employee(s).

Taxability of Leave Travel Allowance (LTA)

Leave Travel Allowance (LTA) is the most common element of compensation adopted by employers to remunerate employees due to the tax benefits attached to it. Section 10(5) of the Income-Tax Act, 1961, read with Rule 2B, provides for the exemption and outlines the conditions subject to which LTA is exempt. Through this write-up, I want to shed light on the taxability and some other interesting relevant aspects which you as a salaried employee must keep in mind. Who and what is covered? Exemption of Fare Only - LTA exemption can be claimed where the employer provides LTA to employee for leave to any place in India taken by the employee and their family. Such exemption is limited to the extent of actual travel costs incurred by the employee. Travel has to be undertaken within India and overseas destinations are not covered for exemption. Exemption on Actual Expense - For example, where an employer provides LTA of Rs 25,000, but an employee spends only Rs 20,000 on the travel cost, then the exemption is limited to only Rs. 20,000. Travel cost means the cost of travel and does not include any other expenses such as food, hotel stay etc. The meaning of family for the purposes of exemption includes spouse and children and parents, brothers and sisters who are wholly or mainly dependent on you. An individual would not be able to claim the exemption in relation to his parents, brother or sisters unless they are wholly or mainly dependent on the individual. Further, exemption is not available for more than two children of an individual born after October 01, 1998.

This restriction does not apply in respect of children born before this date, and also in cases where an individual, after having one child, begets multiple children (twins or triplets or quadruplets, etc.) on the second occasion. The term Child includes a step-child and an adopted child of the individual. Is exemption available every year? No. The tax rules provide for an exemption only in respect of two journeys performed in a block of four calendar years. The current block runs from 2010-2013. If an individual does not use their exemption during any block on any one or on both occasions, their exemption can be carried over to the next block and used in the calendar year immediately following that block. In such cases, the journey performed to claim such exemption will not be counted for the purposes of regulating future exemptions allowable for the succeeding block. For example, Mr. X joins an organization on April 1, 2008 and is entitled to a LTA of Rs 30,000 per annum (financial year 2008-09). X undertook a journey in December 2008 and used his exemption. However, for his LTA entitlement for 2009-10, he did not undertake a journey during the calendar year 2009. He can undertake the journey in 2010 to claim the exemption in relation to the LTA. He would also be able to use the LTA benefit for two other journeys which he can undertake in the current block 2010-13 in relation to his LTA entitlement for future years. Proof of travel Recently Supreme Court has held in the case of Larsen & Toubro and ITI 181 Taxmann 71that employers are under no statutory obligation to collect bills and details to prove that the employees had utilized the amounts obtained against these claims on travel and related expenses. Employers while assessing the travel allowance claims do not need to collect proof of travel to submit to the tax authorities. Though it is not mandatory for employers to demand proof, they still have the right to demand documentary proof depending on its policy. The Judgment of Supreme Court has only moved the responsibility from the employer to the employee, the assessing officer can still ask for the employee to provide details of travel. The individual however needs to keep copies for his or her own records. Such proofs are helpful at the time of the audit of the tax return of the individual. Proof of travel could be, for example, tickets, boarding passes, invoice of travel agent, duty slip etc. During the Fringe Benefit tax (FBT) regime, provision of paid holidays, including travel cost to any place, stay expenses etc. were subject to FBT in the hands of employers and were not taxable in the hands of individuals. Many employers extended the paid holiday benefit instead of LTA. Now with the elimination of FBT , with effect from. April 1, 2009, paid holiday benefit is fully taxable in the hands of employees and, therefore, employers are reintroducing the LTA element by withdrawing the paid holidays benefit. Does claiming LTA in alternate years mean that the two year entitlement gets added together?

It does. If you are entitled to an LTA of Rs.10,000 per year and do not utilize it for the the first year it is carried forward to the next year. In the second year you can claim the entire amount (Rs.20,000) as tax exempt provided you spend it according to the specification in LTA tax laws as detailed above. Carry over concession for Leave Travel Allowance Leave Travel Allowance (LTA) comes with a carry forward feature. You can carry forward your Leave Travel Allowance in the situation that it has not been used. It can be brought forward and claimed in the first year of the next block. Amount Exempted 1. Journey performed by Air - Economy Air fair of National carrier by the shortest route or the amount spent whichever is less will be exempt 2. Journey performed by Rail A.C. first class rail fare by shortest route.or amount spent whichever is less will be exempt. 3. Place of origin and destination place of journey connected by rail but journey performed by other mode of transport - A.C. first class rail fare by shortest route or amount spent whichever is less. 4. Place of origin& destination not connected by rail(partly/fully) but connected by other recognised Public transport system - First class or deluxe class fare by shortest route or amount spent whichever is less. 5. Place of origin& destination not connected by rail(partly/fully) and not connected by other recognised Public transport system also AC first class rail fare by shortest route (as the journey had been performed by rail) or the amount actually spent ,whichever is less. Section 192 of the Income Tax Act:The Supreme Court held that an employer is under no obligation to collect and examine the supporting evidence to a declaration submitted by an employee to the effect that he has actually utilised the amounts for the specified purposes in deciding the liability to TDS u/s. 192. This was decided by SC in the case of ITI Limited 221 CTR 619. Same was also confirmed in the case of CIT v Larsen & Toubro 181 Taxmann 71.