Leave Travel Allowance (LTA), explained for Indian employers

What leave travel allowance covers, and what it does not

LTA is a fare reimbursement, nothing wider. It covers the cost of getting the employee and family from one place to another within India, by air, rail or bus, for a journey taken on leave. The exemption sits under Section 10(5) and Rule 2B of the Income Tax Act.

The common mistake is to read it as a holiday budget. It is not. Hotels do not qualify. Meals do not qualify. The taxi to the station, the local sightseeing, the car hired for a week, none of that qualifies. Only the fare for the main journey does, and only where the trip stays inside India. A journey abroad falls right outside the relief.

Because the scope is so tight, the sensible practice is to size the LTA head against a realistic annual fare, not against a lavish itinerary. If you set it far above what anyone would spend on travel, the surplus simply becomes taxable pay. You can see how LTA sits alongside Basic, HRA and the other heads in the Indian salary structure guide, and how the fully taxable and partly exempt heads pull in different directions.

How the two journeys in four years block works

The exemption is not annual. It runs on a block of four calendar years, and within each block an employee can claim the fare exemption for two journeys. The current block runs from 2026 to 2029. The one before it ran from 2022 to 2025.

So an employee might travel and claim once in 2026 and again in 2028, and that uses up both journeys for the block. LTA can still be paid in the other years, but the exemption does not stretch to cover them. The allowance and the exemption are separate things, a point worth repeating to staff who assume every year is exempt.

Settled tax practice allows an employee who did not use a journey in a block to carry it forward in a limited way into the next block, but the counting can get finicky. Leave that call to the employee and their CA.

Why proof matters, and what happens to unspent LTA

The exemption hangs on travel that actually happened. The employee has to make the journey and keep evidence of it, tickets and boarding passes and the like, for the fare they want treated as exempt. Without that trail there is nothing to exempt.

This is where unspent LTA turns taxable. If you pay the LTA head but the employee takes no qualifying trip, that amount is not a windfall left untaxed. It becomes part of taxable salary and is taxed through TDS in the usual way. The same holds for any part of the allowance above the fare actually incurred.

For a thinly staffed office, the tidy habit is to treat LTA as a claim, not an automatic monthly credit. Pay it against a submitted ticket, or hold it and settle when proof arrives. That keeps the taxable and exempt portions clean on the payslip, and it spares you an awkward reconciliation at year end. A clear payslip that names each head makes the split legible to the employee and to whoever runs your TDS.

Old regime only: who actually benefits

Here is the caveat that changes the whole calculation. The LTA exemption is available under the old regime only. Under the new regime, which is now the default for most taxpayers, it is not available. An employee who has moved to the new regime is taxed on LTA like any other cash allowance.

That does not make the head pointless. Plenty of staff still elect the old regime, often because they claim HRA, LTA and Chapter VIA deductions together, and for them the fare relief is real money. But it does mean you should not sell LTA as a universal saving. Its value depends entirely on the regime the individual picks when they file.

The parallel is the rent relief, which follows the same old regime rule. If your team weighs the two together, the HRA exemption page sets out how house rent allowance is computed, and the wider explainer on what CTC means shows where these heads land inside the cost to company. The Income Tax Department keeps a plain list of which allowances are exempt and which are taxable on its allowances page.

Your job as the employer, and where it ends

The division of labour here is worth stating plainly, because it is where employers overreach. Your job is to put LTA in the salary structure, deduct the correct TDS, issue payslips, and produce Form 16 at year end. That is the whole of the employer remit.

What you do not do is grant the exemption. You do not decide, from the payroll desk, that a given employee's LTA is tax free. The exemption is claimed by the employee in their own return, tested against their proof of travel and their chosen regime, under the Income Tax Act. You structure and document the pay, and you run TDS on it. The employee, with their CA, does the claiming.

Keeping that line sharp protects you. If you promise an exemption the employee later cannot substantiate, the shortfall and the grievance come back to the payroll you ran. Better to state the head clearly on the offer letter, note that the exemption depends on actual travel and the employee's regime, and let the return do the rest.

Where Offrd fits, and where it does not

Offrd sets LTA up as a salary head. When you build the structure, LTA sits as a named line alongside Basic, HRA and the rest, and it flows through to the offer letter, the appointment letter and the payslip. Basic defaults to 50 percent of CTC and HRA to 40 percent of Basic, and every head, LTA included, stays editable so you can size the fare line to something sensible.

What Offrd does not do is compute anyone's tax. It will not tell an employee their taxable income, it does not decide the exemption, and it does not file returns or generate Form 16 for that purpose. Proof and the exemption are handled when the employee claims, and your CA or payroll consultant reflects the treatment in TDS and Form 16. Offrd documents pay, it does not do tax. That boundary is deliberate and it keeps the paperwork honest.

More than 4,000 companies across 350 plus Indian cities use Offrd to build salary structures and produce this paperwork in minutes.

Setup runs under two minutes. Offrd starts at 99 rupees a document, or 50 rupees per active employee a month, with 50 free credits on signup and Atndnz attendance bundled at no extra cost. Put LTA where it belongs, on a clean structure, and let the fare relief be the employee's to claim.