Explained | Is LTA taxed under the new regime?

While the new tax regime provides more benefits, including zero tax on income up to Rs 12 lakh for the financial year 2025-26, one must also consider the taxation of such perks. Here is how the new regime works on these benefits:

Leave travel allowance (LTA) is a perk that many salaried employees are provided. It is a form of stipend given by an employer to an employee who is on leave from work to fund his or her travel expenses.

While the new tax regime provides several benefits, including zero tax on incomes up to Rs 12 lakh for the financial year 2025-26, one must also consider if their taxable income will include their perks. Here is how the new regime works on these benefits:

Is LTA exempt from taxation under new regime?

No, LTA isn't exempt under the new regime. Any LTA you get as part of your salary will be added to your taxable income and taxed accordingly.

Even if you were to submit travel bills for your journeys, it won’t reduce your tax burden under the new regime.

Thus one must include LTA as part of their taxable income to calculate their tax burden if they are considering opting for the new regime.

When is LTA exempt from taxation?

If you have opted for the old Income Tax regime of, then under Section 10(5) of the Income Tax Act, LTA will be exempt under the following conditions:

1. LTA exemption can be claimed twice within a block of four years, with the current block running from January 1, 2022 to December 31, 2025.

2. If your LTA is unused, one journey can be carried forward to the next block.

3. The exemption is valid only for travel within India and does not apply to international trips.

4. Not only the employee, but their spouse, children, and dependent parents or siblings can also claim the benefit.

5. The exemption covers only the actual cost of travel by air, train, or bus and does not include hotel stays and meals.

6. To claim this exemption, you must submit your travel bills and documents to your employer within the deadline they specify.