Indian employees may claim Leave Travel Allowance under Section 10(5) of the Indian tax code. Employers pay LTA funds to employees and their families who travel on vacation in India. The LTA income employees receive is exempt from income tax. The tax code measures an employee's entitlement to LTA based on "block years" -- a defined period of four consecutive years.
The years that make up the blocks which define entitlement to LTA are calendar years, not fiscal years. Indian tax law establishes the LTA blocks. At the time of publication, the current block runs from January 1, 2010, through December 31, 2013. The next block runs from January 1, 2014, through December 31, 2017.
An employee may take the LTA exemption for two journeys during any four-year block. He may claim LTA during two simultaneous years of the block as long as he does not claim the exemption in either of the other two years. For example, a worker can claim LTA in 2012 and again in 2013 as long as he did not claim LTA during 2010 or 2011.
If an employee does not claim an LTA exemption in a single four-year block, he may carry one exemption over into the first year of the next four-year block. Thus, an employee who did not take LTA in the 2006-09 block may take LTA in three consecutive years in the next block: 2010, 2011 and 2012. However, an employee may not claim LTA for two journeys in a single year, even if he has a carry-over exemption.
The amount of the exemption varies. Under LTA rules, an employer reimburses an employee for actual travel expenses for herself and her family -- her dependent spouse, children, parents, brothers and sisters. In most cases, the exemption only applies to two of the employee's children. The class of travel that the employer pays for is based on the travel destination. For example, an employer may provide LTA funds for economy airfare or first-class rail, depending on the distance the employee travels.
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