Planning a trip with your family? There’s a chance your employer’s Leave Travel Allowance (LTA) might not just fund the travel but also help you save taxes. This is where Section 10(5) of the Income Tax Act steps in.
This provision provides tax exemption for Leave Travel Concession (LTC), helping salaried individuals reduce their tax outgo while enjoying time off with their loved ones. Let’s break it down in a simple and relatable way.
What Is Section 10(5) of the Income Tax Act?
Section 10(5) of the Income Tax Act provides an exemption on the value received from an employer in the form of Leave Travel Concession (LTC). This exemption is applicable for travel expenses incurred by an employee & their family while on leave within India.
In short, it offers Leave Travel Allowance (LTA) exemption on the fare costs incurred, subject to certain conditions and limits. "
Who Can Claim This?
This benefit is available to salaried individuals who receive LTA/LTC as part of their salary package. If you're eligible, you can claim full tax exemption on the LTA, but only on actual travel expenses (not meals, hotel stays, or sightseeing). "
Key Conditions to Claim LTA Exemption under Section 10(5):
- Only for domestic travel: The exemption is valid for travel within India. International travel is not covered.
- Travel modes allowed: Railways (AC First Class), Air (Economy class), or public transport, depending on availability.
- Family included: The exemption also applies to travel expenses of your spouse, children (up to two), and dependent parents or siblings.
- Actual travel must happen: The exemption is not available if you don't travel and just receive LTA as cash.
- Claim in two blocks: The LTC exemption can be availed twice in a block of four calendar years. For example, the current block is 2022–2025.
Example to Understand Section 10(5)
Suppose Rahul, a salaried employee, receives ₹50,000 as LTA. He travels from Delhi to Kerala with his wife and child in economy class and incurs a travel cost of ₹30,000. Under Section 10(5), ₹30,000 is tax-exempt, & the remaining ₹20,000 is taxable as part of income.
Section 10(5) of the Income Tax Act – New Tax Regime
Under the new tax regime, most exemptions & deductions, including the LTA exemption under Section 10(5), are not allowed. If you opt for the new regime, you cannot claim this benefit.
Rule 2B – Backbone of Section 10(5)
The conditions and limits mentioned under Section 10(5) are governed by Rule 2B of the Income Tax Rules, which specifies:
- Permissible travel modes,
- Eligible members,
- And claim frequency.
LTA vs LTC – Are They the Same?
Yes, in most cases, Leave Travel Allowance (LTA) and Leave Travel Concession (LTC) are used interchangeably. While LTA is the component of your salary, LTC refers to the tax exemption under Section 10(5) for the amount received as LTA.
Final Thoughts
Section 10(5) of the Income Tax Act is a great way to enjoy some downtime with your family and save taxes at the same time. Just ensure you plan your trip within the block years, retain tickets, & follow the conditions of Rule 2 B. For most salaried employees, this is an overlooked but valuable tax-saving tool.
If you’re unsure about your eligibility or how to claim the exemption, don’t worry—CallMyCA is here to help you file your ITR smartly and legally.
