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All about LTA

LTA (Leave Traveling Allowance / Leave Traveling Assistance) given by your employer as part of your salary for your travel expenses while you are on leave. You will anyway receive this money from your employer but you need to pay tax if you have not really traveled unless you claim LTA tax exemption benefit.

This exemption comes under the provisions of Section 10(5) of the IT Act according to which in the case of an individual, the value of any travel concession or assistance received by him will be exempt if it is received - from his employer, for himself and his family - in connection with his proceeding on leave to any place in India.

Important point to note here :

•     You have to
• be on leave in the period for which your claiming the LTA.
• (or) travel after your retirement
• (or) travel after after termination of your service.
• This exemption covers only your travel expenses --- Hotel, food, sight-seeing, local conveyance etc are not included.
• You can not claim TAXI/AUTO expenses to the airport or station if you are traveling by air/train/bus.
• If you rent a car / anything for your sigh seeing, the expenses would not be exempted.
• If you are going through any travel dealer on some kind of package, you need to take receipt from them to show the actual travel expenses. In general these packages include hotel stay and other sight seeing charges, but the exemption would not apply for all those.
• LTA covers travel expenses for your family members also if they are traveling along with you. Please remember the condition that you have accompany them.
• For the purposes of this clause, ‘family’ means the spouse and children of the individual, and parents and siblings wholly or mainly dependent on the individual.
• According to sub-rule(4) of rule 2B exemption on travel concession will not be admissible to more than two surviving children of an individual born after 1-10-1998. This restriction will not however apply in respect of children born before 1-10-1998, and also in cases where an individual, after getting one child, begets multiple (twins/triplets/quadruples, etc) on the second occasion. In recooking this limit of two children, children born out of multiple birth after the first child will be treated as "one child" only.
• It applies for step children also Section 2(15B).
• The maximum exemption you can claim is the maximum of your actual expenditure incurred for journeys performed and the actual LTA amount received from your employer.
• The exemption can be availed only in respect of two journeys performed in a block of four calendar years. Present four year block is 2006 - 2009 (i.e., 1-1-2006 to 31-12-2009). Coming four year blocks will be 2010-2013, 2014-2017 etc.
• In four years, you can claim for tax exempt only for tow years.
• You can not take exemption for two journeys in a calendar year.
• Please remember that, here year is a calendar year (Jan-Dec) , different from usual Apr-Mar financial year.
• If you have not availed travel concession or assistance during any of the specified four-year block periods on on both occasions, or in one of the two permitted occasions (i.e, you have either taken exemption once or none), then the exemption can be claimed in the calendar year immediately following that block. This is popularly known as the ‘carry-over’ concession. In such cases, the exemption so availed will not be counted for purposes of regulating the future exemptions allowable for the succeeding block of four years.
• So, if you have not taken the benefit this exemption in four years , dont worry !! you can take one extra exemption in the following four years.
• For example: you have taken just one/none exemption/s in 2006-2009. Then you can one exemption from 2006-2009 to 2010-2013. Rule is that: you have use this exemption in 2010. Suppose you have taken exemption in 2010, 2011 in the period 2010-2013, which means you have effectively taken only one exemption in 2010-2013. So, you avail one more exemption in 2014 and it continues.
• Mode of transport :
• For journeys performed by Air only air economy fare of national carrier (Indian Airlines or Air India) by the shortest route to the place of destination can be exempted. IT tax rule says this applies to only national carriers but experts say that it applies to even Deccan or any other private carriers also.
• For journeys where place of origin of journey and destination are connected by rail and the journey is performed by any mode of transport other than by air, not more than the air-conditioned first class rail fare by the shortest route to the place of destination can be exempted.
• For journeys where place of origin of journey and destination or part thereof are not connected by rail, (i) Where a recognized public transport system exists, not more than the first class or deluxe class fare on such transport by the shortest route to the place of destination. (ii) Where no recognized public transport system exists, not more than the air-conditioned first class rail fare, for the distance of the journey by the shortest route, as if the journey has been performed by rail.
• You can travel by taxi, but the maximum amount can not be more than the specified amount in the above three rules. You need to claim the car/taxi travel expenses while filing your returns if your employers does not accept this.
• Shortest path : The exemption is available for the farthest place by the shortest route while going on vacation/coming back from vacation. This particularly applies when a circular journey is made.
• Simple Algorithm -- for circular journeys. If you leave from A and then visit B, then C, D, E, F, .. and come back to A.
• To journey : Take one city at a time, if the distance you have traveled to reach the city is shortest then you can avail the LTA benefit for the journey to that city, otherwise your benefit stops at the previous city and your "To journey" also stops. Here, suppose you reach B by shortest distance then you can claim the benefit for A->B. Now, if you come to C after B, and if there is any other route to reach C directly (not via B) then you can not claim benefit for your B-->C journey. Now the journey after this ( C-->D-->E-->F--> G-->A) is your return journey.
• Return Journey : Now, take one city at a time from the city where your return journey starts (here C). If your are returning to A from that city on a shortest route then you stand to take benefit for the whole journey starting from that city. Coming to our example, if C-->D-->E-->F--> G-->A and D-->E-->F--> G-->A are not the shortest routes from C and D respectively then your C-->D can not be claimed. Now if E-->F--> G-->A is the shortest route then you can claim E-->F--> G-->A.
• I hope, I have not confused you. If you have any specific questions just drop a comment.
• If you traveled any time between Apr 2007 -- March 2008, then you have to claim the LTA benefit in that assessment year itself i.e. 2007-2008. And this holds for any other year.
• It does not cover international travel. Travel must be within India.
• In order to claim the exemption, the assessee must produce original proofs for expenses i.e. the tickets or bills. For air travel, you employer might ask you to submit the boarding pass as proof that you have really traveled. This is actually not required : if you have ticket that mentions that you have actually BOARDED the flight, that should be enough. You can always tackle this while submitting returns if your employer doesn't agree. E-tickets for air travel are acceptable.
• You can not carry the LTA amount from one year to another. There is a confusion about this. If you think , you can then consult your tax expert, at least IT website doesn't seem to mention anything in this regard.

Claim LTA this year (2007 - 2008)

As you know tax rates coming down from next financial year and if you want to save more money using the LTA benefit then travel in 2007-2008 and get the most benefit. If you salary is in the range of 2.5 - 5 L then you have to pay 30% tax on this income, where as this percentage will come down next year. So, if you avail of the LTA tax benefit this year, then the you dont need to pay that 30% tax and you save more compared to claiming next year where you get 10% - 20% tax benefit. If your taxable income is more than 5L then dont worry, It doesn't matter.

Ahmed

PS: If you still have any doubts just drop in a comment mentioning your e-mail id.

Tax Saving Options other than 80C

We have seen various tax saving options in previous articles. Apart from 80C tax saving options, you have other ways to save tax as well.

Section 80D : Mediclaim Premium

You can claim up to 15,000 for tax deduction on the amount you paid for mediclaim policy premium for self and other family members (spouse and dependents like parents/children). If you are senior citizen, maximum amount extends upto 20,000. If you are paying the premium for your parents (whether dependent or not), you can claim an additional maximum deduction of Rs. 15,000.

Section 80DD : Dependent Treatment or LIC Policy

According to the Income Tax Act, if you are paying a premium to Life Insurance Company (LIC) or any other insurance company (approved by the Income Tax board) for the medical treatment of a ‘dependent’ physically disabled person, you can avail exemption under the section 80DD.

Here, the ‘dependent’ should be none other than your spouse, children, parents or sibling. If the person is suffering from 40% of any disability, a fixed sum of Rs 50,000 can be claimed in a year. Similarly if the disability is 80%, the fixed sum hikes to Rs 1,00,000 per year. For initiating the process of deduction you need to submit the medical certificate issued by a medical authority along with the return of income.

80DDB
If you have incurred expenses for the medical treatment of certain diseases for self or your dependents, you can claim a deduction of up to Rs. 40,000 or the actual amount paid, whichever is less, under the section 80DDB. For a senior citizen, the maximum exempted amount is Rs. 60,000, or the amount actually paid for medical expenses. To claim a deduction under this section, you need to submit a medical certificate from a doctor working in a government hospital.

Reference
 

80E : Interest on Education Loan
The interest paid on loan taken for pursuing higher education of self or any dependent is exempted from tax under section 80E. An education loan can be taken for wife, children and minors for whom you are the legal guardian. This deduction is applicable for a period of eight years or till the interest is paid, whichever is earlier. The deduction is only approved for higher studies, which means full-time graduate or postgraduate courses in engineering, management or applied sciences, pure sciences including mathematics or statistics. However, from 2011 onwards, the scope of this exemption has been extended to cover all fields of studies including vocational studies pursued after completing the senior secondary examination or equivalent. No exemption is applicable for part-time courses.

80G : Charitable Donations
One often donates on philanthropic grounds to help the destitute. Such an amount can be donated to trusts, charitable institutions and approved educational institutions, and qualifies for deduction under Section 80G. The exemptions can be up to 50 per cent or 100 per cent of the donations made. Funds in which the donations are eligible for tax exemptions include the National Defense Fund, Prime Minister Drought Relief Fund, National Foundation for Communal Harmony, National Children's Fund, Prime Minister's National Relief Fund, etc.

Reference

80GG : House Rent Deduction
If a salaried or self-employed person staying in a rented house does not receive any kind of HRA, they can claim a deduction under this section. However, you cannot avail any such benefit if you, your spouse and/or your child owns any residential accommodation in India or abroad. You can claim the least of the following under Section 80GG: 25 per cent of the total income, or Rs. 2000 per month, or excess of rent paid over 10 per cent of total income.

80GGC : Political Party Donations
Any monetary contribution to any political party or electoral trust is eligible for tax exemption. Thus, your contribution, as a matter of appreciation for their work, will serve both the purposes.

80U : Disability
A resident of India suffering from any kind of specified disability is eligible to claim tax deduction under this section. In order to enjoy this opportunity, one should be suffering from not less than 40 per cent of the following diseases: blindness, low vision, mental illness, mental retardation, hearing impairment. The deduction provided is flat Rs. 50,000, irrespective of the expense incurred. If the disability is severe, the deduction can be up to Rs. 1 lakh. One needs to provide a copy of all the certificates issued by a medical authority in order to avail this benefit.

80CCG
The Finance Act 2012 introduced a new Section 80CCG to offer 50 per cent tax break to new investors who invest up to Rs. 50,000 and whose Gross Taxable Income is less than or equal to Rs. 10 lakh. It has been introduced for budding investors entering the equity markets for the first time and is a once-in-a-lifetime benefit.

All about HRA Exemption

House Rent Allowance (HRA) is an allowance given by an employer to an employee. The sole purpose of this is to meet the cost of renting a home.

You can claim the HRA tax benefits only if

• You have a HRA component in your salary structure.
• You are staying in a rented accommodation.
• Rent exceeds 10% of your salary ( Basic + Dearness allowance (DA) ).

To take this benefit you either need to submit the original rent receipts or the registered rent agreement. This is mandatory only if your rent exceeds Rs 3000 though. If you are living with your parents and paying rent to them, then you can claim the tax benefit on that also. Please remember that your land lord or your parents need to show this as rental income in their returns. So, even if you are not actually paying rent to your parents, you could still take rent receipts signed by your parents and claim the tax benefit. If your parents fall in lower tax breaks then it would be beneficial to you as a family. At the same time rent paid to spouse can not be claimed as the relationship between husband and wife is not commercial in nature (according to income tax dept of India).

The actual HRA tax benefit you can be entitled to is the minimum of

• The actual amount of HRA received from the employer.
• 40% your salary ( Basic + DA ) . This increases to 50% if you are living in a metro.
• Rent - 10% of salary (Basic + DA ).

Tax on remaining amount ( HRA - (Tax exemption on HRA)) needs to be paid.

Home Loan Tax Benifit

The EMI you pay for the home loan has two components : Principal , Interest.

The principal repayment you make on your home loan is eligible for income deduction under Section 80C. The amount paid towards stamp duty, registration fee and other expenses for the purpose of transfer of such house property -- if they follow income tax norms (not towards admission fee, repairs, expenditures for which deduction is allowable under the provisions of section 24) -- can also come under this deduction. As most of the people know, there is a cap of 1 lack on section 80C. This 80C benefit is basically for self occupied home (You can still get this benefit under some circumstances even if it is not self occupied but not rented out -- explained later)

Under section 24 , the interest paid on the home loan is also tax exempted. If the house is self occupied then the maximum exemption would be 1.5 L. If the property is not self occupied (may be rented out or used by your parents etc) then there is no cap on this. Please note that, the interest paid on the home loan is not directly deductible from your income. You need to show this as "income from other sources" with a negative value.

HRA vs Home Loan

•  If you are staying in the same house for which you have taken the loan, then there is no question HRA benefit. You will not get it as you are staying in your own house and to get the benefit you need to stay in a rented place. You can enjoy 80c and section 24 benefits.

• If you taken a home loan, then you can still enjoy the HRA benefit for some genuine reasons ( if you staying in a rented house because the house you have taken loan on is in a different city or distant from your work space or smaller for your convenience or your parents staying there. ). However it is necessary that you have some of your belongings there at your home (the one you own) and you stay there on and off on during weekends and holidays. Despite this, if your employer does not agree and denies your tax benefits, you will have to claim it at the time of filing your tax returns. You can also enjoy the 80c benefit in these cases. Section 24 also applies here and there will not be any cap of 1.5L.

• Please note that, if you have rented out the house you have taken a loan on and you are staying in another rented house, then you can get the benefit of HRA but you will not be entitled to get a deduction on principal amount you have paid under section 80c as it is not valid if the property is rented. Section 24 applies though and there will not be any cap of 1.5L.

• If you have taken two home loans ( or more than one) still you can enjoy the HRA decided by the above rules. You will get section 24 benefit on both the houses but 80c benifit would only applies for houses which were not rented out and have genuine reasons for not self occupying as explained above.

• If you have rented out the house you need to show the rental income as "income from other sources". 30% of it would be standard deduction, so you dont need to pay tax on that. You pay tax on the remaining 70%. And, if you have not rented it out and also not staying there you need to pay tax on notional value (rent you would have got, if you gave the house on rent). This values will be decided by the corporation/municipal depending on the city and location.

• Please note that, the interest paid on the home loan is not directly deductible from your income. You need to show this as "income from other sources" with a negative value. This can be done in 12A form.

If you have any doubts just leave a comment with your e-mail id. I will try to accommodate the answer in this post and inform you.

Thanks,

Ahmed

Everyone's Favorite : 80C

This is by far most famous section in Income tax by most of us, because u/s 80C you can claim up to 1,00,000 as deductions. Here is the list of investments which can offer you these deductions under this section.

Following investment are covered under section 80C

1. Provident Fund / Employee Provident Fund 
If your salaried person, your employer deducts EPF from your salary. All such contributions are counted towards 80C.

2. Public Provident Fund
You can open PPF account at post office or any national bank. All such contributions are counted towards 80C.

3. National Saving Certificate
You can purchase NSC certificates at Post Office. NSC is for either 5 or 10 years. One important thing you need to note here is that, the interest accrued every year is taxable but such interest is deemed to be re-invested, so is eligible for deduction under 80C in the year in which you got the interest.

4. Five Year Bank Fixed Deposits
All 5 year fixed deposits are eligible under this deduction. These FDs have a lock in period of 5 years. You can get these Fixed Deposits from any bank of your choice.

5. Five Year Post Office Time Deposit (POTD) Scheme
Similar to Bank fixed deposits, POTDs with duration more than 5 years are eligible under this section.

6. National Housing Bank Suvriddhi
National Housing Bank deposits term deposits with duration of more than 5 years are eligible for 80C deduction.

7. Equity Linked Savings Scheme (ELSS)
Mutual fund contributions towards ELSS mutual funds are tax exempted under this section. There is a lock in period of 3 years for these mutual funds. This one is one of the best options if you want to stay invested in market and still want to get tax benefits.

8. Life Insurance Premium
Premium paid towards insurance for yourself, spouse or children is covered in this section with a cap of 10% of Sum Assured.

9. Unit Linked Insurance Plan
Unit linked Insurance is the combination of Life Insurance and Equity Mutual Funds. You can purchase these from most of the life insurance providers.

10. Tuition Fees 
Any amount paid towards tuition fee for the eduction of first two children is eligible under this section.

11. Home Loan Principal Payment
Amount paid towards your home loan Principal is covered under this section.

12. Stamp Duty & Registration Charges for home 
If you have taken home loan this year, any amount paid towards registration of the property is covered under this section.

One important thing to note is that, using all the above investments you can get maximum of 1,00,000/- deduction only.

Getting Started : Blog on Income tax

Hi Everyone,

My name is Ahmed Shareef. I work as Software engineer at a MNC. I am not an expert in Income Tax or on Personal Finance. But I am very passionate about Economics and Personal Finance. In this blog I will try to easily explain what is Income Tax, How to take benifits of various Income Tax Schemes or Regulations. I will try to answer some of the questions you have as well.

These are number of blogs, websites which explain you regarding various rules of Income Tax. They often do very good job at it. But I figured that, the information I need is spread across multiple sites, and often it takes lot of time to understand all the rules and regulations. Also, I found it is very hard to understand it as well.

In this blog, I will try to explain to you things in a more non-technical, easy to understand way. These are things I learnt while stuggling to understand these rules. Here, I will try to explain you how to save on your taxes -- remember I wont be teaching anything about "avoiding" taxes.

Please note : I want you to pay your taxes, but not a penny more than you have to.

Hope I am helpful. Let me know your feedback.

Ahmed