LTA to enjoy tax exemption in new regime

NEW DELHI: The government may allow the Leave Travel Allowance ( LTA) to be exempted from taxation once the Direct Tax Code (DTC) comes into effect. The directive to this extent will figure in the rules to be framed by the finance ministry after the DTC is passed by Parliament.

A senior finance ministry official, who is involved with the framing of the DTC, clarified that the LTA will enjoy tax exemption and individual taxpayers would continue to enjoy the same benefits that are available at present — actual expenditure on account of the LTA will be exempted for two years in a block of four.

However, in the new structure, the LTA will be clubbed as a part of the income. The difference will reflect in the reporting mechanism, where the LTA will have to be accounted in the total income and then deductions would be allowed. The idea behind this reporting mechanism is to ascertain the amount of money an employee gets as the LTA. So far, LTAs don't reflect in either salary slips or in Form 16. After the DTC Rules are framed, the LTAs will also find mention in Form 16 issued by employers.

As the LTA was missing from the list of exemptions in the proposed DTC, tabled in Parliament last week, there was a growing perception that the government has done away with the incentive and decided to tax employees.