As the new tax regime continues to reshape how salaried employees plan their finances, one of the most pressing questions this year is: Can you claim Leave Travel Allowance (LTA) exemption under the new tax regime, or is it now fully taxable? Here’s a detailed, real-time update on the latest rules, what’s changed, and what it means for your salary and tax planning in 2025.
No LTA Exemption in New Tax Regime:
If you opt for the new tax regime, you cannot claim any exemption on Leave Travel Allowance. The entire LTA amount received from your employer becomes fully taxable as part of your salary. This is a significant shift from the old regime, where LTA was a popular tax-saving component for salaried individuals.
Old Tax Regime Still Offers LTA Benefits:
Under the old tax regime, LTA exemption remains available as per Section 10(5) of the Income Tax Act. Employees can claim LTA for travel expenses incurred on vacations within India for themselves and eligible family members (spouse, children, dependent parents, and siblings). The exemption applies only to actual travel costs (air, rail, or bus tickets)—expenses on accommodation, food, sightseeing, or local transport are not covered.
Block Period and Frequency:
LTA can be claimed for a maximum of two journeys in a block of four calendar years. The current block is from January 1, 2022, to December 31, 2025. If you don’t use your LTA exemption in this block, you can carry forward one journey to the first year of the next block.
Exemption Calculation:
The exemption is limited to the lower of the actual travel cost incurred or the LTA amount provided by the employer. For example, if your employer provides ₹30,000 as LTA and your travel tickets cost ₹25,000, only ₹25,000 is exempt. If your tickets cost ₹35,000, you can only claim up to ₹30,000.
Eligible Travel:
-
Only domestic travel is allowed; international trips do not qualify.
-
The exemption is available for travel by air (limited to economy class fare of Air India), train (AC first-class fare), or deluxe bus (if the route is not covered by air or train).
-
The journey must be the shortest route between the origin and destination.
Proof and Process:
Employees must retain and submit proof of travel (tickets, boarding passes, invoices) to their employer, typically along with Form 12BB, to claim the exemption. No exemption is allowed without proper documentation.
What Has Changed Under the New Tax Regime?
LTA is Fully Taxable:
The new tax regime, introduced to simplify the tax structure and offer lower tax rates, has removed most exemptions and deductions—including LTA. This means the entire LTA amount is added to your taxable salary and taxed according to your slab.
No Partial Relief:
There is no partial exemption or deduction for LTA under the new regime, regardless of your travel expenses or block period usage. This is a key factor to consider when choosing between the old and new tax regimes.
Why the Change?
The government’s objective with the new regime is to offer a straightforward, lower-tax option for those willing to forgo exemptions and deductions. While the new regime offers a higher standard deduction (now ₹75,000) and tax-free income up to ₹12.75 lakh (after rebate), it does not allow for LTA or other common allowances.
What Should Employees Do?
-
Tax Planning:,If LTA is a significant part of your salary and you frequently use it for domestic travel, you may benefit more from the old tax regime, where LTA exemption can still reduce your taxable income. If you opt for the new regime, be prepared for your entire LTA to be taxed.
-
Documentation: For those in the old regime, ensure you keep all travel proofs and submit them timely to your employer. Remember, only travel expenses are exempt—other costs are not.
-
Block Year Deadline: The current block ends on December 31, 2025. To claim LTA exemption for FY 2024-25, you must complete your travel and submit claims before March 31, 2025, for it to be considered in the current financial year.
In Summary:
LTA exemption is not available under the new tax regime—your entire LTA will be taxable. To enjoy LTA tax benefits, you must opt for the old regime and comply with all exemption rules and documentation requirements. Choose your tax regime wisely based on your salary structure and travel plans.
Sources: ClearTax, LexComply, Economic Times, Navi, Tax2win, Zoho Payroll, IndiaFilings, TaxBuddy
