Few facts about LTA

Some nice to know things about the LTA component of one's salary -

1. If you do not wish to claim LTA in one particular year you can have your employer carry forward your LTA for the next year.
2. You don't need to submit a proof/bills for the travel undertaken to the employer now. This has been termed in a judgement by Supreme Court in 2009. check this out. But this doesn't mean that you need not keep the bills. The taxation department might still want them from you directly.
3. The current block of LTA is 2010-13. You can claim tax benefits twice during these 4 years.
4. The bills can be any domestic travel. You cannot show fuel bills of the personal vehicle though.
5. You and your working wife can both claim LTA but not on the same travel.
6. LTA covers only travel and not the stay, which is weird. 

You can find details in my old post on LTA here.

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Can Holiday Package be claimed as LTA?

Found this article on the above topic. Thought to spread the word. Do check out - [one mint].

The answer is - Yes, it can be as far as it is a domestic travel, another thing to be noticed is that LTA is for spouse, dependent children, dependent brothers or sisters only, so if you have taken a holiday with your extended family or children who are no longer dependent on you, then you can’t claim LTA exemption on that part of the expense.

Since LTA can be claimed only for travel – if your holiday package included hotel and sightseeing (which it normally does) – you won’t be able to take an exemption for that.

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Buying ULIPS will Cost Less Now

Insurance Regulatory and Development Authority (IRDA) has announced new set of guidelines for ULIPs. They will now cost lesser but have a longer lock-in period.

IRDA, on Monday, said that insurers will now be allowed to charge up to 4% on annual premium paid on Ulips for the first five years, and thereafter charges will be reduced during the tenure of the policy. For plans of 15 years and above, the charges will be restricted at 2.25% of the yearly premium.

IRDA has also increased the lock-in period for all Ulips from three years to five years now, including the top-up premiums. The decision is expected to make these products more like long-term financial instruments that can provide risk protection. Longer lock-in would also discourage those insurance buyers who often entered Ulips, which are market-linked products, for short term gains. The regulator also increased the insurance cover on such products to 10 times of the first-year premium compared to five times now.

[source]

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Know your Credit Worthiness

You can now access your Credit Information Report (CIR) directly from CIBIL. As you may be aware, your CIBIL CIR is a factual record of your credit payment history compiled from information received from credit grantors. The purpose is to help credit grantors make informed lending decisions - quickly and objectively, and enable faster processing of your credit applications to help provide you speedier access to credit at better terms.

You can request for a copy of your CIBIL CIR in three quick steps through Email, Mail or Fax:

Email: myreport@cibil.com

1. Email the CIR Request Form duly filled in
2. Mail self attested hardcopies of your lastest Identity Proof and Address Proof documents and Fees to P.O.BOX 17, Millennium Business Park, Navi Mumbai- 400710
3. Once CIBIL receives the documents and Fees3, your request will be processed and copy of your CIR will be dispatched to you.

Letter: Address (mentioned at the end of the post)

1. Write to CIBIL with the CIR Request Form duly filled in
2. Also mail self attested hardcopies of your Identity Proof and lastest Address Proof documents and Fees to P.O.BOX 17, Millennium Business Park, Navi Mumbai- 400710
3. Once CIBIL receives the documents and Fees, your request will be processed and copy of your CIR will be dispatched to you.

Fax: 022-40789007

1. Fax CIBIL the CIR Request Form duly filled in
2. Mail self attested hardcopies of your Identity Proof and latest Address Proof documents and Fees to P.O.Box 17, Millennium Business Park, Navi Mumbai 400710
3. Once CIBIL receives the documents and Fees, your request will be processed and a copy of your CIR will be dispatched to you.

Valid Identity Proof: PAN Card/ Passport/ Voters ID (Mail self attested hard copy of any one of these Identity Proofs)

Valid Address Proof: Bank Account Statement/ Electricity Bill/ Telephone bill (Mail self attested hard copy of any one of these Address Proofs)

Payment terms: Demand Draft (DD) of Rs 142/- (inclusive of all taxes and express delivery charge) , in favour of Credit Information Bureau (India) Limited payable at Mumbai

 

Please note that the fee once paid is non-refundable.

 

Download Request Form

 

CIBIL has no authorised agents. Please do not contact anyone other than CIBIL in order to gain access to a copy of your Credit Information Report.

 

Your CIBIL CIR will be presented to you in a simple and easy to understand format. However, on receiving your CIBIL CIR, if you require any explanation/clarification, you can email us at consumerqueries@cibil.com.

* Credit Information Bureau (India) Limited

P.O Box 17,

Millennium Business Park,

Navi Mumbai- 400710

 

All your correspondence to CIBIL must be sent through Indian Post only.

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Reimbursement of Medical Expenses - R.N. Lakhotia

As a general principle, any perquisite in one form of a medical allowance is typically taxable. On the other hand, reimbursement by an employer of medical expenses incurred by an employee is generally tax-free. Read on below for the full picture

Medical Expenses Allowance

If a fixed allowance is received by an employee for the discharge of medical expenses, it is a taxable perquisite. Hence, an employee should avoid the receipt of an allowance for medical expenses but should rather take medical reimbursement, so that it is tax-free. For greater details reference may be made to MEDICAL TREATMENT IN INDIA OF AN EMPLOYEE'S FAMILY MEMBER.

Medical Expenses: Reimbursement

Where an employee is allowed to get reimbursement for the medical expenses incurred by him at a hospital maintained by the employer or a Government approved hospital, the entire amount of reimbursement is tax-free and is not treated as a taxable perquisite. For greater details, please refer to Medical Treatment in India of an Employee's Family Member.

Medical Reimbursement up to Rs. 15,000

If an employee receives some money for his medical treatment or the treatment of any member of his family or any of his dependant relatives then a sum up to Rs. 15,000 p.a. is not treated as a taxable perquisite as per Clause (b) of the provision to Section 17 (2) of the I.T. Act. This exemption is enjoyed by the employee only if the expenditure is actually incurred on his medical treatment or for treatment of any member of the family or a dependant relative. It may be noted here that there is no condition that the medical treatment should be at any of the approved hospitals. It could be at any place and from any type of doctor belonging to Allopathic, Ayurvedic, Unani or Naturopathy system of medicine. If medical allowance is received then it would be fully taxable.

Medical Treatment Abroad

Foreign medical treatment could be of the employee as well as of any member of his family. We have given details of the exemption available to the employee for a member of his family under the heading MEDICAL TREATMENT ABROAD OF AN EMPLOYEE'S FAMILY MEMBER. "Family" for this purpose means:

i) The spouse and children of the individual ;

ii) The parents, brothers and sisters of the individual or any of them wholly or mainly dependant on the individual.

Where the medical treatment is of the employee, then also the expenditure incurred by the employer on his medical treatment outside India as well as the expenditure incurred by the employer on the travel or stay abroad of the employee and of one attendant who accompanies the employee is not to be treated as taxable perquisite as per the Proviso (vi) to Section 17(2) of the I.T. Act. This is, of course, subject to the main condition that the gross total income of the employee as computed before including in it such expenditure does not exceed Rs. 2 lakhs.

Medical Treatment Abroad: Allowance

Where an employee is allowed an allowance instead of reimbursement by the employer of the expenditure of medical treatment abroad, it is to be treated as a taxable allowance and a part of the taxable salary of the employee.

Medical Treatment Abroad of an Employee's Family Member

Clause (vi) of the proviso to Section 17(2) of the I.T. Act, 1961 provides that any sum paid by the employer for any expenditure incurred by the employee or any member of the family of such employee outside India, is fully exempt from income tax. Further, the expenditure incurred by the employer on travel or stay abroad of the employee or any member of the family of such employee for medical treatment and travel and stay abroad of one attendant who accompanies the patient in connection with such treatment is also completely exempt from tax and is not treated as a taxable perquisite. This is of course subject to an important condition that the exemption would apply only in the case of an employee whose gross total income as computed before including the said expenditure does not exceed Rs. 2 lakhs. It may also be mentioned here that the expression "hospital" includes dispensary or a clinic or a nursing home as well.

Medical Treatment Abroad: Reimbursement

If an employee gets reimbursement of the expenditure incurred on his medical treatment or of any member of his family outside India or on his travel or stay abroad or of a member of the family and also of one attendant accompanying the patient, then also the amount of reimbursement would not be treated as a taxable perquisite. This is because the reimbursement of the foreign medical treatment would be considered as expenditure incurred by an employer and is described under the head MEDICAL TREATMENT ABROAD OF AN EMPLOYEE'S FAMILY MEMBERS .

Medical Treatment Abroad: Travel & Stay Abroad of Accompanying Attendant

If an employee or his relative is provided with free medical treatment outside India, then the amount of any expenditure incurred by the employer on the medical treatment of the employee or any member of the family of such an employee, is exempt. The amount of expenditure incurred by the employer on travel or stay abroad of the employee or any member of the family of such an employee for medical treatment and also on travel and stay abroad of one attendant who accompanies the patient in connection with the treatment is also completely exempt from I.T. Such expenditure is not treated as a taxable perquisite as per Clause (vi) of the proviso to Section 17(2) of the I.T. Act. Of course this exemption is subject an important condition about the monetary limit of the salary of the employee. Thus, it is provided that this exemption will be enjoyed by the employee whose gross total income, as computed before including the expenditure incurred on medical treatment or on travel and stay abroad, does not exceed Rs. 2,00,000. Thus, proper tax planning requires that an employee who is likely to receive or who is interested in getting this facility of free travel and stay abroad for self and attendant for treatment abroad should see that the gross total income of the employee does not exceed Rs. 2 lakhs.

Medical Treatment at a Hospital Maintained by the Employer

The value of any medical treatment provided to an employee or any member of his family in any hospital maintained by the employer is fully exempt from income tax without any monetary limit under the provisions of Clause (i) of the proviso to Section 17 (2) of the I.T. Act, 1961.

Medical Treatment at a Nursing Home

Nursing home is included within the definition of "Hospital" as per Clause (i) of the Explanation below Section 17 (2) of the I.T. Act. Thus, treatment in a nursing home, or a dispensary or a clinic or a hospital is treated in the same manner as per the proviso to Section 17(2) of the I.T. Act. If the nursing home is maintained by the employer the value of any medical treatment provided to an employee or any member of his family is completely exempt from income tax. Where any sum is paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or the treatment of any member of his family in any nursing home maintained by the government or any local authority or any other nursing home approved by the government for the purposes of medical treatment of employees, it is completely exempt from income tax. Likewise, if any sum is paid by the employer in respect of any expenditure on the treatment of the employee or any member of his family in any private hospital or nursing home approved by the Chief Commissioner of Income Tax having regard to the prescribed guidelines for the purpose of medical treatment of prescribed diseases, it is not treated as a taxable perquisite but is completely exempt from income tax as per Clause (ii) (b) of the proviso to Section 17 (2) of the I.T. Act. Hence before getting treatment in a nursing home the employee should make sure that either the nursing home is maintained by the employer or by the government or by a local authority or is an approved one for the treatment of government employees. In the case of private nursing homes the employee should make sure that it is approved for the treatment of certain prescribed diseases or ailments by the Chief Commissioner of Income Tax of the area concerned. If this precaution is taken by the employee, he can get the facility of tax-free medical treatment in a nursing home. Thus, proper tax planning is necessary for getting exemption in respect of medical treatment in a nursing home. The employee should file a certificate from the Hospital regarding the disease and the amount paid. It is advised that the employer should maintain a list of approved nursing homes so that the employees can be treated free of I.T. at such nursing homes and in case of emergency, time is not lost by the employer or employee in ascertaining whether a particular nursing home is approved for the purpose of tax-free medical treatment. Also See: MEDICAL TREATMENT OF PRESCRIBED DISEASES OR AILMENTS AT AN APPROVED HOSPITAL.

Medical Treatment at a Private Hospital

An employee may sometimes be given treatment at a private hospital and not necessarily at a hospital maintained by the Government or any local authority, which may not be approved for the medical treatment of employees of the Government. Such a hospital is normally treated as a private hospital. If such a private hospital is approved by the Chief Commissioner of Income Tax, having regard to the prescribed guidelines for the purposes of medical treatment, any sum paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or treatment of any member of his family is completely exempt from income tax under Clause (ii) of the proviso to Section 17 (2) of the I.T. Act. Hence, proper planning should be adopted for getting an employee or a member of his family treated at a private hospital which is approved by the Chief Commissioner for the purposes of such medical treatment by way of attaching a certificate with the I.T. Return from the hospital specifying the disease and the amount paid to the hospital. Also See: MEDICAL TREATMENT AT A NURSING HOME.

Medical Treatment at an Approved Hospital

The expenditure incurred by the employer on the indoor treatment at an approved hospital is not treated as a perquisite within the meaning of Section 17(2) of the I.T. Act. Please see MEDICAL TREATMENT IN INDIA OF AN EMPLOYEE'S FAMILY MEMBER.

Medical Treatment at Hospital: Allowance

If an employee instead of being provided free treatment in a hospital is given an allowance for hospital treatment, the allowance would not be liable to exemption under the Proviso to Section 17 (2) and would be taxed in the hands of the employee. Hence, proper tax planning should be adopted by the employee so that he does not receive any hospital treatment allowance as such but receives reimbursement of expenditure or payment for hospital treatment in full by the employer.

Medical Treatment at Hospital: Reimbursement

Where an employee or any member of his family is provided with free medical treatment in any hospital maintained by the employer, the value of the perquisite is nil. The same is the case where free hospital treatment is either provided or is reimbursed by the employer for an employee or a member of his family in any hospital maintained by the Government or any local authority or any other hospital approved by the Government for the purposes of the medical treatment of its employee or any private hospital approved by the Chief Commissioner of Income Tax for the treatment of prescribed ailments and diseases. This is so under the provisions of the proviso to Section 17 (2) of I.T. Act, 1961.

Medical Treatment at Unrecognized Hospitals

If an employee or a member of his family is provided with free medical treatment in an unrecognized hospital, it is not exempt from income tax under the proviso to Section 17(2) of the I.T. Act. However, by various judicial decisions it has been held that the value of medical reimbursement facility provided by the employer to employee should not be treated as a taxable perquisite. Hence on general grounds without resorting to the specific provisions of the proviso to Section 17(2) of the I.T. Act, the value of the medical treatment in unrecognized hospitals is also to be treated as tax-free. But this is likely to cause litigation. Hence as far as possible, employers and employees should avoid medical treatment of the employees in unrecognized hospitals or clinics. However, upto Rs. 15,000 p.a. medical treatment at unrecognized hospitals would also not be income.

Medical Treatment in India of an Employee's Family Member

Under the provisions of Section 17(2), a good deal of the expenditure incurred by the employee on medical treatment, paid for by the employer, is not treated as a taxable perquisite. This is secured by the proviso to Section 17(2) of the I.T. Act which says that the value of any medical treatment provided to any member of his family in any hospital maintained by the employer is completely exempt from income tax in the hands of employee. Where any sum is paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or the treatment of any member of his family-

(a) in any hospital maintained by the employer, the Government or any local authority or any other hospital approved by the Government for the purpose of medical treatment of his employees;

(b) in respect of the prescribed diseases or ailments, in any hospital approved by the Chief Commissioner having regard to the prescribed guidelines, it is not treated as taxable perquisite at all. In the latter case the employee should file a certificate from the hospital about the disease and the amount paid. Hence the employee should make proper tax planning and see that either the hospital where he or the member of his family is treated is a Government hospital or an approved hospital or is a private one, then it is approved by the Chief Commissioner of Income Tax. This is in addition to a sum up to the maximum extent of Rs. 15,000 paid by the employer in respect of any expenditure actually incurred by the employee on his medical treatment or any member of the family in a previous year. This is also exclusive of the expenditure incurred by the employer on the medical treatment of the employee or any member of the family outside India which is described in a separate heading given below. For the prescribed diseases, etc. refer to MEDICAL TREATMENT OF PRESCRIBED DISEASES & AILMENTS AT AN APPROVED HOSPITAL.

Medical Treatment of Prescribed Diseases or Ailments at an Approved Hospital

We have seen elsewhere that the medical benefits in respect of any sum paid by the employer directly to a hospital on account of treatment of the employee or any member of his family is completely exempt from income tax under the provisions of Clause (ii) (b) of the proviso to Section 17 (2) of the I.T. Act, 1961 provided such a hospital is approved by the Chief Commissioner of Income Tax. In approving such a hospital, the Chief Commissioner of Income Tax has to pay proper regard to the guidelines for medical treatment of prescribed diseases or ailments for the treatment of an employee or any member of his family at such a hospital. Rule 3 A of the I.T. Rules, 1962 lays down the said guidelines. For the sake of easy reference Rule 3 A is reproduced below:

"Rule 3 A (1) In granting approval to any hospital for the purposes of sub-clause (b) of Clause (ii) of the proviso to Clause (2) of Section 17, the Chief Commissioner shall satisfy himself that the hospital is registered with the local authority and fulfills the following requirements, namely:

(i) the building used for the hospital complies with the municipal bye-laws in force;

(ii) the rooms are well ventilated, lighted and are kept in clean and hygienic condition;

(iii) at least ten iron spring beds are provided for patients;

(iv) at least one properly equipped operation theater is provided, with a minimum floor space of 180 square feet and with a separate sterilization room;

(v) at least one labour room is provided, with a minimum floor space of 180 square feet, in case the hospital provides medical service for maternity cases;

(vi) aseptic conditions are maintained in the operation theatre and the labour room;

(vii) a duty room is provided for the nursing staff on duty;

(viii) adequate space for storage of medicines, food articles, equipment's, etc, is provided;

(ix) the water used in the hospital or nursing home is fit for drinking;

(x) adequate arrangements are made for isolating septic and infectious patients;

(xi) the hospital is provided with and maintains:

(a) high pressure sterilizer and instrument sterilizer;

(b) oxygen cylinders and necessary attachments for giving oxygen ;

(c) adequate surgical equipment's, instruments and apparatus including intravenous apparatus ;

(d) a pathological laboratory for testing of blood, urine and stool ;

(e) electro-cardiogram monitoring system ;

(f) stand-by generator for use in case of power failure;

(xii) there is at least one qualified doctor available on duty around the clock for every twenty beds or fraction thereof,

(xiii) in hospitals providing intensive care unit facilities, there are at least two qualified doctors available on duty around the clock exclusively for such intensive care unit;

(xiv) one nurse is on duty around the clock for every five beds or a fraction thereof;

(xv) in hospitals providing intensive care unit facilities, there are at least four nurses provided exclusively for every four beds or fraction thereof for such intensive care unit;

(xvi) the hospital maintains a record of health of every patient containing information about the patient's name, address, occupation, sex, age, date of admission, date of discharge, diagnosis of disease and treatment undertaken.

(2) For the purpose of sub-clause (b) of clause (ii) of the proviso to clause (2) of Section 17, the prescribed diseases or ailments shall be the following namely,

(a) cancer;

(b) tuberculosis;

(c) acquired immunity deficiency syndrome;

(d) disease or ailment of the heart, blood, lymph glands, bone marrow, respiratory system, central nervous system, urinary system, liver, gall bladder, digestive system, endocrine glands or the skin, requiring surgical operation;

(e) ailment or disease of the eye, ear, nose or throat, requiring surgical operation;

(f) fracture in any part of the skeletal system or dislocation of vertebrae requiring surgical operation or orthopedic treatment;

(g) gynecological or obstetric ailment or disease requiring surgical operation, cesarean operation or laparoscopic intervention;

(h) ailment or disease of the organs mentioned at (d), requiring medical treatment in a hospital for at least three continuous days;

(i) gynecological or obstetric ailment or disease requiring medical treatment in a hospital for at least three continuous days;

(j) burn injuries requiring medical treatment in a hospital for at least three continuous days;

(k) mental disorder, neurotic or psychotic requiring medical treatment in a hospital for at least three continuous days;

(l) drug addiction requiring medical treatment in a hospital for at least seven continuous days;

(m) anaphylactic shocks including insulin shocks, drug reactions and other allergic manifestations requiring medical treatment in a hospital for at least three continuous days.

Explanation: For the purpose of this rule -

(a) "qualified doctor" means a person who holds a degree recognised by the Medical Council of India and is registered by the Medical Council of any State ;

(b) "nurse" means a person who holds a certificate of a recognised Nursing Council and is registered under any law for the registration of nurses ;

(c) "surgical operation" includes treatment by modern methodology such as angioplasty, dialysis, lithotripsy, laser or cryo-surgery.

[Excerpt from: How to Save Tax on Your Salary & Perquisites (A.Y. 2004-05) by R.. N. Lakhotia, Vision Books, New Delhi.

R. N. Lakhotia is one of India's top authorities on taxation and practising as an advocate and tax consultant. He has written over 100 books on tax planning and is a regular columnist for several newspapers.]

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Leave Travel Allowance - Sixth Pay Commission

The sixth pay commission has recommended some modifications to the Leave Travel Allowance rules for the Government employees. These changes have been made effective from September 1, 2008. I've tried to put in most of the changes in this post.

Highlights:

• Parents dependent on the Govt. employees are eligible for LTA irrespective of whether they are staying with Government employee or not.
• Fresh employees can avail 3 home town travel and one to any place in India during the first two block of for years.
• Travel entitlements for LTA will be same as that of official tour with no daily allowance.

The parents (stepmother and stepfather)who are wholly dependent on the Government employees shall be included in the definition of family for the purpose of LTA, irrespective of whether they are residing with the Government employee or not. The definition of dependency will be linked to the minimum family pension prescribed in Central Government and dearness relief thereon. The extant conditions in respect of other relations included in the family including married/divorced/abandoned/separated/widowed daughters shall continue without any change.

Types of LTA:

Fresh recruits to Central Government are allowed to travel to their home town along with their families on three occasions in a block of four years and to any place in India on the fourth occasion. This facility shall be available to the Government officers only for the first two blocks of four years applicable after joining the Government for the first time. The blocks of 4 years shall apply with reference to the initial date of joining the Government even though the employee changes the job within Government subsequently. The existing blocks will remain the same but the entitlements of the new recruit will be different in the first eight years of service. All other provisions concerning frequency of travel under LTA are retained.

Entitlement for LTA:

Travel entitlements, for the purpose of official tour/transfer or LTA, will be the same but no daily allowance shall be admissible for travel on LTA. Further, the facility shall be admissible only in respect of journeys performed in vehicles operated by the Government or any Corporation in the public sector run by the Central or State Government or a local body. Air Journey by Private Airlines will however, continue to be admissible as per Ministry of Finance O.M. No. 19024/1/E-IV/2005 dated the 24th March, 2006 and in terms of the orders of DOPT in this regard.

Encashment of earned leave along with LTA

Government officers are allowed to encash ten days earned leave at the time of availing of LTA to the extent of sixty days during the entire career. The leave encashed at the time of LTA will not be deducted from the maximum amount of earned leave encashable at the time of retirement. It is further clarified that where both husband and wife are Government servants, the present entitlement for availing LTA shall remain unchanged, and encashment of leave equal to 10 days at the time of availing of LTA will continue to be available to both, subject to a maximum of sixty days each during the career.

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Global Meltdown: How safe is your Job?

The writing is clearly on the wall now. There is an obvious meltdown in the world financial markets. The impact is being seen on the jobs as well. The companies have started to downsize the staff (Jet Airways fiasco is the latest example). They actually have no other option. If a company has to survive, it has to downsize to cut costs. The easiest victim would be the employee who is an average performer and is not quite the blue eyed boy of his manager.

What are your options in such a scenario?

Start saving for the rainy day, if you already haven't! This is the time to accept the mistake. You should have started this much earlier. But it's better late than never. You should now start to save as much as you can for the dreaded day when you will fall pray to the job loss.

• If you had saved Rs 2,000/- every month for the past 5 years, you would have had Rs. 1,20,000/- by now only in principal. I've not counted the interest you could have earned on it in the FD or for that matter RD (These are the safest instruments and you will never lose money here).
• This fund would help you in your lean period and will cover your EMIs, rent and telephone bill.

In case, you are one of the scapegoats, liquidate those shares, where you had invested in order to make hefty gains. Whatever is the leftover in this investment can now work for the payments of your bills and help you run the household expenses till you find the next job.

Start Enhancing your skills. Any new skill earned can help you in getting a new job in case of a job loss.

Make yourself visible in the organization. It makes it difficult to fire you, if you are known to people. But this should be through your work and not through the other activities.

Scale down your expectations. Be it in the present company or in the new job that you are looking for, you should bring your expectations a bit down and be realistic. A job in hand is better than 10 lucrative offers.

Better be serious about your job. This way, you may not have to actually watch the day when you are given the pink slip.

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LTA- Leave Travel Allowance

Leave Travel Allowance (LTA) is an allowance/benefit that your employer gives you to cover your travel expenses. This is a tax saving instrument as well. Your employer gives you money to go on vacation and the money is not taxable! So far so good…

But there are stipulations/rules from the government as in any other benefit.

Let’s get a look into LTA in this post…

What do I do to claim LTA?

Nothing more than getting a break from the work! Isn’t that great?

· You should take a leave from work and travel to anywhere in India. International travels are not covered.

· Travel alone or take the family along with you. However, you need to be on the list of travelers to get the claim. Family, in this case, includes yourself, parents, siblings dependent on you, spouse (even if your spouse is working) and children.

For children born after October 1, 1998, the exemption is restricted to only two surviving children (unless, of course, one birth has resulted in multiple children like twins and triplets).

What is covered?

Only the travel costs are covered. All the eating, lodging and partying expenses are yours.

So, whether you fly, hop on to a train or take public transport, you will have to show the ticket to claim your LTA. This means you will need to keep your air, rail or public transport ticket.

What if you want to travel by a car? If a car is owned by a central government organization like ITDC, the state government or the local body, LTA is permitted.

If you could not get public transport and resorted to private transport, try and get a bill. If the bill is not accepted by your employer, you can always file an income tax return, claim an exemption and get a refund.

You must take the shortest route though. The LTA is covered for the shortest route only.

Can I claim LTA every year?

No. You can only do that twice in the block of 4 years. This block is not calculated with the start of your employment. The government defines these blocks. The currently running block is 2006-09 -- January 2006 to December 2009.

You can only claim LTA once in a year. This means, you are entitled to go on leave any number of times but it will be tax free only once in a year. If you are married, you can ask your spouse to claim the other journey.

But I can’t travel. My job doesn’t allow me to.

Then you can carry it forward.

One LTA can be brought forward and claimed in the first year of next block.

Let's say you do not take your LTA in 2002-05. You will be able to take one LTA in 2006. This means that, in the 2006-09 block, you will be totally entitled to the three journeys.

I switched my job. What happens to my LTA?

You can still claim your LTA. Let’s say, you claimed one of your LTAs in 2006. 2007 you switched jobs. You can now claim the remaining LTA from the present employer. The only thing you need to show the current employer is the previous tax returns.

What if I don’t claim?

If your LTA is not utilized, it gets added to your salary and you will be taxed on it.

Let's say you and your spouse are both employed and both have LTA as part of the salary package. Your LTA is Rs 20,000 and hers is Rs 20,000 too.

Both of you and your child go for a holiday. The tickets for the three of you amount to Rs 15,000. You supply the tickets to your office and this amount will be eligible for a tax deduction; the balance Rs 5,000 will be taxed. You can claim exemption only to the tune of your expenditure.

If you claim this, your spouse will not be able to claim this same holiday from her employer. His/ Her Rs 20,000 will be taxed. Unless, of course, you go for another holiday and he/ she claims it.

Or, let's say, you spend Rs 30,000 on tickets but your LTA is just Rs 20,000. You can claim up to Rs 20,000 and tell your spouse to claim his/ her ticket from his/ her employer.

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Learn about your HRA

House Rent Allowance is a very important component of one’s salary. The tax implications of the house rent allowance (HRA) seem to baffle most people. Taking the case of two individuals, Akram and Rafiq, who work in the same company, I have tried to explain this allowance in detail.

One significant difference between the two individuals, which is necessary for this study, is that Akram resides in his own house while Rafiq in a rental accommodation.

Are both eligible for HRA?

Yes. Because the payment of HRA by an employer does not depend upon its end-use by the employee. An employee may prefer to stay in his/her own accommodation but will still be eligible to receive HRA if it is a part of the salary package. This is so, because HRA, as its name suggests, is an Allowance supplementing the Basic Salary and Dearness Allowance/Pay, if any, in a salary package.

Is HRA taxable?

In the case of Akram, who stays in his own house, tax is payable on the full amount of HRA received by him. Rafiq, living in a rented accommodation, may qualify for relief on the HRA received by him, such relief being dealt with under section 10 (13A) of the Income Tax Act, 1961.

When is HRA exempt from tax?

A salaried individual, in order to get an exemption on his/her HRA, must fulfill the following basic conditions:

• The employee must not live in his/her own house
• He/she must pay rent for accommodation
• Such rent must be more than 10 per cent of his/her salary

Is Rafiq exempt from tax?

Rafiq fulfils the first two conditions. The amount of his salary and rent paid by him will determine whether he meets the last condition too. If Rafiq's monthly salary is Rs 15,000, he will qualify for HRA exemption should the rent paid by him exceed Rs 1,500 (10 per cent of salary).

How much will Rafiq's exact exemption amount to?

The extent to which HRA is exempt is limited to the least of the following:

• For residential accommodation located at Bombay, Delhi, Calcutta or Madras - an amount equal to 50 per cent of salary and 40 per cent elsewhere
• HRA actually received by the employee
• Excess of rent paid over 10% of salary

Assume:
Rafiq's annual salary = Rs 1,80,000
HRA = Rs 63,000
Monthly rent = Rs 3,000
Rental accommodation situated at: Hyderabad
Rafiq will be eligible for exemption on HRA to the extent of Rs 18,000 being the least of the following:

• Rs 72,000 (being 40 per cent of salary since rented house is at Cochin)
• Rs 63,000 (being HRA actually received)
• Rs 18,000 (annual rent of Rs 36,000 - Rs 18,000 which is 10 per cent of salary)

How should one avail of this exemption?

Provide your employer with information about the rent so that he can credit you with the eligible amount of relief before deducting tax at source. You can also claim such exemption when filing your tax return and seek a refund.
In all cases where HRA exceeds Rs 600 per month (Rs 7,200 per annum), evidence of rent paid, meaning rent receipts, have to be produced. The assessing officer has the right to call for proof of payment.

Points to remember

• Allowances are different from reimbursements in that they are usually fixed in value and are paid irrespective of whether the recipient incurs expenditure or not. They are aimed at meeting specific requirements like entertainment and travel. They could also be of a compensatory nature like a border area/remote area allowance could be paid to an individual posted in the Lakshadweep Islands.
• Salary for HRA purposes = Basic Salary + DA/DP + commission (only if calculated as a fixed percentage of turnover achieved by the employee)
• Salary will not include any arrears for earlier years, which are received during the previous year.
• If a bonus is received for the last year in the current year, such amount of bonus will not be included in HRA salary for the purpose of determining HRA exemption. You can include the amount of bonus due to you for the current year which you will receive only in the next year.
• Salary will include all amounts due (even if not received) pertaining to the period during the previous year during which the rental accommodation is occupied by the employee.
• HRA actually received has to necessarily pertain to the period in the previous year when the rental accommodation is occupied by the employee - meaning, HRA received for that period during which the employee was not occupying the rental accommodation will not be exempt. (If Rafiq were occupying his rented house for only 9 months during the year, then the HRA exemption of Rs.18,000 computed above will get restricted to Rs.13,500 (pertaining to the period of his occupancy).
• You can pay rent to your parents provided they show the same in their Income tax Returns. This would save both of you from future litigation. You can however, NOT pay rent to your spouse. The relationship is not commercial in nature; a husband and wife are supposed to live together. So, such a payment will not be accepted by Authorities.
  

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