Leave Travel Allowance (LTA) Exemption under Section 10(5) read with rule 2B

Leave Travel Allowance (LTA): All of the salaried employees wants to know about LTA as LTA is the generally included in the salaries by the employers due to the tax benefits attached to it.  An LTA is the remuneration paid by an employer for Employee’s travel in the country, when he is on leave with his family or alone. The Person who is claiming the LTA must be on leave in order to claim the exemption. LTA amount is tax free under Section 10(5) of the Income-Tax Act, 1961, read with Rule 2B. Below are few important aspects of LTA which a Salaried Employee wants to Know.

LTA exemption can be claimed where the employer provides LTA to employee for leave to any place in India taken by the employee and their family.

Exemption to be provided for the Fare only: - The Exemption is provided only for the Travelling Cost. i.e. Hotel Cost and other Expenses are not allowed only travel cost is Exempt. Therefore,

• If journey performed by Air: Economy Air fare of National carrier by the shortest route or the amount spent whichever is less is Exempt.
• If journey performed by Rail: A.C. first class rail fare by shortest route. Or amount spent whichever is less is exempt.
• Place of origin and destination place of journey connected by rail but journey performed by other mode of transport - A.C. first class rail fare by shortest route or amount spent whichever is less.
• Place of origin & destination not connected by rail(partly/fully) but connected by other recognized Public transport system - First class or deluxe class fare by shortest route or amount spent whichever is less.
• Place of origin& destination not connected by rail(partly/fully) and not connected by other recognized Public transport system also – AC first class rail fare by shortest route (as the journey had been performed by rail) or the amount actually spent, whichever is less.

Travel within India only allowed- Travel has to be undertaken within India and overseas destinations are not covered for exemption.

Exemption on Actual Travel Expense - For example, where an employer provides LTA of Rs 55,000, but an employee spends only Rs 40,000 on the travel cost, then the exemption is limited to only Rs. 40,000. Travel cost means the cost of travel and does not include any other expenses such as food, hotel stay etc.

What is the meaning of Family for LTA Exemption: - The meaning of ‘family’ for the purposes of exemption includes spouse and children and parents, brothers and sisters who are wholly or mainly dependent on you. An individual would not be able to claim the exemption in relation to his parents, brother or sisters unless they are wholly or mainly dependent on the individual.

Restriction on Number of Child for Claiming LTA: - Further, exemption is not available for more than two children of an individual born after October 01, 1998. This restriction does not apply in respect of children born before this date, and also in cases where an individual, after having one child, begets multiple children (twins or triplets or quadruplets, etc.) on the second occasion. The term “Child” includes a step-child and an adopted child of the individual.

Can I Claim the LTA in case of Switch of JOB: - If you switch jobs, you can get the LTA not only from your present organization but also from your former employer, if the concession is lying unutilized. Let’s say that, in the 2010-13 block, you claimed LTA in 2010. In 2012, you switched jobs. You can still claim your second journey with your new employer. Of course, your new employer will ask to look at your earlier tax returns to see whether it has been claimed or not.

Can I Claim the exemption every year: -No. The tax rules provide for an exemption only in respect of two journeys performed in a block of four calendar years. The current block runs from 2010-2013. If an individual does not use their exemption during any block on any one or on both occasions, their exemption can be carried over to the next block and used in the calendar year immediately following that block.

In such cases, the journey performed to claim such exemption will not be counted for the purposes of regulating future exemptions allowable for the succeeding block. For example, Mr. X joins an organization on April 1, 2011 and is entitled to a LTA of Rs 30,000 per annum (financial year 2011-12).

X undertook a journey in December 2011 and used his exemption. However, for his LTA entitlement for 2012-13, he did not undertake a journey during the calendar year 2012.

He can undertake the journey in 2014 to claim the exemption in relation to the LTA. He would also be able to use the LTA benefit for two other journeys which he can undertake in the current block 2014-17 in relation to his LTA entitlement for future years.

Does claiming LTA in alternate years mean that the two year entitlement gets added together: - It does. If you are entitled to an LTA of Rs.10,000 per year and do not utilize it for the the first year it is carried forward to the next year. In the second year you can claim the entire amount (Rs.20,000) as tax exempt provided you spend it according to the specification in LTA tax laws as detailed above.

Carry over concession for Leave Travel Allowance: - Leave Travel Allowance (LTA) comes with a carry forward feature. You can carry forward your Leave Travel Allowance in the situation that it has not been used. It can be brought forward and claimed in the first year of the next block.

Can I Claim LTA Twice in a Year: - Though you can claim two journeys in a block of four years, you can claim the LTA benefit just once in a year. You cannot claim both the journeys in one year. So, while a person can get an income tax exemption for two journeys in a block of four calendar years, he can make a trip only once a year. If you make two trips in a year, you lose one. One way out is to claim one and make your spouse claim the other in case your spouse is also working.

LTA in case person who is claiming the LTA is not Travelling: - No, LTA cannot be claimed for the family if you as a claiming person are not included in the travel.

Can a husband-wife duo claim LTA: - Yes, both the spouses can claim the exemption on LTA from their employers. However, both of them cannot claim for the same journey.

Proof of travel

Supreme Court has held in the case of Larsen & Toubro and ITI that employers are under no statutory obligation to collect bills and details to prove that the employees had utilised the amounts obtained against these claims on travel and related expenses.

Employers while assessing the travel allowance claims, do not need to collect proof of travel to submit to the tax authorities. Though it is not mandatory for employers to demand proof, they still have the right to demand documentary proof depending on its policy. The Judgement of Supreme Court has only moved the responsibility from the employer to the employee, the assessing officer can still ask for the employee to provide details of travel.

The individual however needs to keep copies for his or her own records. Such proofs are helpful at the time of the audit of the tax return of the individual. Proof of travel could be, for example, tickets, boarding passes, invoice of travel agent, duty slip etc .

Here we would like also to draw attention of the employers to Circular No. 8/2013 dated 10-10-2013 which says that in respect of LTA The employer has to satisfy the obligation that leave travel (fare) concession is not taxable in view of section 10(5) the employer is not only required to be satisfied about the provisions of the said clause but also to keep and preserve evidence in support thereof. In our opinion the circular failed to take into account SC Judgment in the case of Larsen & Toubro and ITI and Employer are not bound to mandatorily preserve the Documents.

During the Fringe Benefit tax (FBT) regime, provision of paid holidays, including travel cost to any place, stay expenses etc. were subject to FBT in the hands of employers and were not taxable in the hands of individuals. Many employers extended the paid holiday benefit instead of LTA.

Now with the elimination of FBT , with effect from. April 1, 2009, paid holiday benefit is fully taxable in the hands of employees and, therefore, employers are reintroducing the LTA element by withdrawing the paid holidays benefit.

Extract of Section 10(5)

“Section 10(5)  in the case of an individual, the value of any travel concession or assistance received by, or due to, him,—

(a)  from his employer for himself and his family, in connection with his proceeding on leave to any place in India ;

(b)  from his employer or former employer for himself and his family, in connection with his proceeding to any place in India after retirement from service or after the termination of his service,

subject to such conditions as may be prescribed (including conditions as to number of journeys and the amount which shall be exempt per head) having regard to the travel concession or assistance granted to the employees of the Central Government :

Provided that the amount exempt under this clause shall in no case exceed the amount of expenses actually incurred for the purpose of such travel.

Explanation.—For the purposes of this clause, “family”, in relation to an individual, means—

(i)  the spouse and children of the individual ; and

(ii)  the parents, brothers and sisters of the individual or any of them, wholly or mainly dependent on the individual; ]”

Conditions for the purpose of section 10(5) as Prescribed in Rule 2B of Income Tax Rules- Extract of Rule 2B

2B. (1) The amount exempted under clause (5) of section 10 in respect of the value of travel concession or assistance received by or due to the individual from his employer or former employer for himself and his family, in connection with his proceeding,—

(a)  on leave to any place in India;

(b)  to any place in India after retirement from service or after the termination of his service,

shall be the amount actually incurred on the performance of such travel subject to the following conditions, namely :—

[(i)  where the journey is performed on or after the 1st day of October, 1997, by air, an amount not exceeding the air economy fare of the national carrier by the shortest route to the place of destination;

(ii)  where places of origin of journey and destination are connected by rail and the journey is performed on or after the 1st day of October, 1997, by any mode of transport other than by air, an amount not exceeding the air-conditioned first class rail fare by the shortest route to the place of destination; and

(iii) where the places of origin of journey and destination or part thereof are not connected by rail and the journey is performed on or after the 1st day of October, 1997, between such places, the amount eligible for exemption shall be :—

(A)  where a recognised public transport system exists, an amount not exceeding the 1st class or deluxe class fare, as the case may be, on such transport by the shortest route to the place of destination; and

(B)  where no recognised public transport system exists, an amount equivalent to the air-conditioned first class rail fare, for the distance of the journey by the shortest route, as if the journey had been performed by rail.]

(2) The exemption referred to in sub-rule (1) shall be available to an individual in respect of two journeys performed in a block of four calendar years commencing from the calendar year 1986 :

[Provided that nothing contained in this sub-rule shall apply to the benefit already availed of by the assessee in respect of any number of journeys performed before the 1st day of April, 1989 except to the extent that the journey or journeys so performed shall be taken into account for computing the limit of two journeys specified in this sub-rule.]

(3) Where such travel concession or assistance is not availed of by the individual during any such block of four calendar years, an amount in respect of the value of the travel concession or assistance, if any, first availed of by the individual during first calendar year of the immediately succeeding block of four calendar years shall be eligible for exemption.

Explanation : The amount in respect of the value of the travel concession or assistance referred to in this sub-rule shall not be taken into account in deter-mining the eligibility of the amount in respect of the value of the travel con-cession or assistance in relation to the number of journeys under sub-rule (2).]

[(4) The exemption referred to in sub-rule (1) shall not be available to more than two surviving children of an individual after 1st October, 1998 :

Provided that this sub-rule shall not apply in respect of children born before 1st October, 1998, and also in case of multiple births after one child.]

Sample LTA Form: To Download the LTA Form Click Here

Tags: Income Tax, LEAVE TRAVEL ALLOWANCE, lta, LTA FORM,

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A brief note on Goods Transport Agency (GTA) Service

A brief note on Goods Transport Agency (GTA) Service

An Insight into History of Goods Transport Agency

Service Tax was first introduced on Goods Transport Operator (GTO) services with effect from 16-11-1997. However, due to several oppositions from the truck associations, the levy of service tax on the same was withdrawn with effect from 02-06-1998. Since the magnitude of revenue loss from the withdrawal of service tax on transport services by road became so high that the Ministry of Finance once again introduced the tax on Goods Transport Agency (GTA) Services with effect from 01-01-2005.

With the re-introduction of service tax on transportation services by road, the incidence of tax has been shifted from Goods Transport Operator (GTO) to Goods Transport Agency (GTA). In fact a very thin linedistinction can be drawn between the two, which can be noted from the Budget Speech dated 08-07-2004 delivered by Hon’ble Finance Minister, Shri P.Chidambaram which reads:

“the tax would be only on transport booking agents and there is no

intention to levy service tax on truck owners or truck operators”

Goods Transport Agency – Definition

It would be pertinent to note that Clause (p) of Section 66D (Negative List) specifies transportation of goods by road except when provided by GTA as a Non-Taxable service. It means that only service provided by GTA is taxable. Now the question arises as to what technically is a Goods Transport Agency. Goods Transport Agency as defined u/s 65B(26) of Finance Act,1994 introduced with effect from 01-07-2012 means:

•  Any person;
• that provides service ‘in relation to’;
• transport of goods by road; &
• issues consignment note.

It may be noted that the definition uses the word “means” which makes the definition restrictive and exhaustive. As defined above, the aforementioned points are the mandatory ingredients for the purpose of levy of service tax on GTA. Besides the phrase used in the definition ‘in relation to’ has extended the scope of GTA, which includes various intermediary and ancillary services such as loading, unloading, packing, unpacking, transhipment, temporary warehousing and is to be treated as part of GTA service for the successful provision of the principal service. Further, it needs to be mentioned that any service which has a direct or indirect connection with a specified service has to be treated as ‘in relation to’ that specific service. The aforesaid can be affirmed from the decision laid down by Hon’ble Supreme Court in the case of Doypack Systems (P) Ltd. vs. Union of India 1998(36)ELT 201(SC).

Moreover, any person who is the owner of trucks or arranges the trucks by hiring them and provides transportation service cannot be termed as GTA. In addition to this, a GTA must have a direct contract with consignor/consignee and receive freight from consignor/consignee.

Now the question which puts many minds into dilemma is the issue pertaining to consignment note. What actually is it? Let us have a brief analysis on it.

Consignment Note

Generally, when a person deposits the goods with any transporter for the purpose of transport to a given destination, the transporter issues the lorry receipt or consignment note to the person depositing the goods. The name of the consignee is mentioned on such note. The original copy of the lorry receipt is sent by the person depositing the goodsi.e consignor to the consignee to enable him to collect the goods from the transporter.

Further, it has been made mandatory for every GTA to issue consignment note to the receiver of service under Rule 4B of Service Tax (Fifth Amendment) Rules, 2004. It would be pertinent to note that the failure to issue consignment note would merely be a violation of law but will not discharge the service receiver from paying his liability.The aforesaid can be affirmed from the case of Bharati Soap Works v CCE [2008]13 STT 196.

Liability to pay Service Tax

When the taxable service is provided by GTA to an individual, HUF, sole proprietorship or an unregistered partnership firm, then it is the GTA who is liable to pay service tax on the taxable value of the services provided. However, as per Clause (2) of Notification No. 30/2012 – ST dated 20-06-2012, 100% liability (popularly known as, Complete Reverse Charge Mechanism) to pay service tax has been shifted from service provider to service receiversubject to the condition that the service receiver must belong to any of the specified categories which includes factory(registered under Factories Act,1948), company, registered corporation, registered society, registered body corporate or a registered partnership firm.

Now, the common question which arises is that whether the threshold limit of INR 10 lacs needs to be considered, in case the liability to pay service tax falls on service receiver. In this connection, it would be pertinent to note that the threshold exemption of INR 10 lacs under Notification No. 33/2012–ST is made available only to service provider and not to service recipient. The service receiver is liable to pay service tax under Reverse Charge Mechanism.

Abatement/ value-based exemption in Value

An abatement of 75% of gross amount charged is permitted for determining the value on which tax is payable. In simple words, as per entry no. 7 of Notification No. 26/2012 – ST dated 20-06-2012, the service tax is payable for services provided by GTA on 25% of gross amount charged. But one needs to be cautious that if abatement of 75% is availed then CENVAT credit on inputs, capital goods and input services is prohibited if used for providing output service.

Besides abatement, it would be relevant to note that certain value based exemptions have also been inserted vide Item No. 21 of Notification No. 25/2012-ST dated 20-06-2012 which grants full exemption under two circumstances namely (i) where the gross amount charged on goods transported in a single goods carriage does not exceed INR 1500; & (ii) where the gross amount charged for transportation on a consignment of all such goods for a single consignee does not exceed INR 750.

Consignor Ltd., a public limited company, engaged in manufacturing of excisable goods arranges for the transportation of goods from Goods Transport Agency to the Consignee Ltd. The GTA charges a consideration of INR 10000 from Consignee Ltd.

What will be the amount of service tax & who shall be liable to pay service tax?

Since both the consignor & consignee falls under the specified category, the liability to pay service tax falls on consignor or consignee whoever pays freight or is liable to pay freight. In the instant case, as the freight is paid by the consignee, the liability to pay service tax also falls on consignee under the Reverse Charge Mechanism by availing an abatement of 75% on the gross amount charged by the GTA. It is pertinent to note that the Consignee will have to mandatorily take registration of GTA Services and pay service tax & accordingly file the half yearly return in Form ST-3. Service Tax payable by Consignee = INR 309 (10000*25%*12.36%)

What if the consideration is reimbursed to the consignor from the consignee?

It may be noted that generally the freight is paid by the person who is the recipient of goods. However, in some cases, when the goods are sold on Free on Board (FOB) basis, it is the consignor who pays the freight. In this regards, it is relevant to note that in M/s Sumangalam Suitings Pvt. Ltd. & Others vs. CCE, the Hon’ble Tribunal has held that if the consignor has engaged a GTA for delivery of goods to the consignee, it cannot be contended that the consignee is liable to pay service tax, even if the consignee would have reimbursed freight charges to the consignor. Service Tax payable by Consignor = INR 309 (10000*25%*12.36%)

What if the Consignor/Consignee (liable to pay) is an individual, proprietorship firm, or unregistered partnership firm?

If the consignor/consignee is an individual, proprietorship firm or unregistered partnership firm, then the liability to pay service tax falls on service provider i.e. GTA subject to the condition that threshold limit of INR 10 Lacs must have exceeded. The GTA may not claim CENVAT credit of inputs and input services in case it claims abatement. Service Tax payable by GTA = INR 309 (10000*25%*12.36%).

Cenvat Credit on GTA Services

Rule 2(l) of the Cenvat Credit Rules, 2004 defines Input Services as “inward transportation of inputs or capital goods and outward transportation upto place of removal”.It would be relevant to note that if the manufacturer utilizes the services of GTA for inward transportation, then without giving any second thought to other things, the manufacturer can avail the CENVAT credit of service tax paid on GTA. But the doubt may arise in case of Outward freight. Is CENVAT credit allowed on outward transportation?

From the afore-mentioned definition of Input service, it is crystal clear that outward transportation upto place of removal is eligible for credit. Here, emphasis should be placed on the phrase “up to the place of removal”. Now, one may question that when can outward transportation is to be treated as input service?In this regard, Circular No. 97/8/2007 dated 23^rd August, 2007 may be referred wherein it is stated that if the following three conditions are satisfied then only outward transportation is to be treated as input service, which are mentioned here-in-below:

(i)                 The ownership is with the seller till the doorstep of the buyer;

(ii)               The seller shall bear the risk of loss or damage during transit; &

(iii)             The freight charges were integral part of the price.

And accordingly by satisfying the aforesaid conditions, a manufacturer paying the service tax on GTA service can avail the CENVAT credit on outward transportation.

Nischal

Aditya

                                                                  

By Aditya Singhania & Nischal Agarwal

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Important Due Dates For the Month of March 2014

Event Date	Act	Applicable Form	Obligation
05-03-2014	Service Tax	Challan No.GAR-7	Payment of Service Tax of Feb by Companies
06-03-2014	Service Tax	Challan No.GAR-7	Payment of Service Tax for month ending Feb for corporate assesses making E-PAYMENT
07-03-2014	Income Tax	Form No.15G, 15H,27C	Submission of Forms received in Feb to IT Commissioner
07-03-2014	Income Tax	Challan No. ITNS-281	Payment of TDS/TCS deducted/collected in Feb
10-03-2014	Excise	ER-1	Return for Non SSI assessees for Feb
10-03-2014	Excise	ER-2	Return for EOUs for Feb
10-03-2014	Excise	ER-6	Return by units paying duty > 1 crore (CENVAT + PLA) for Feb
15-03-2014	D-VAT	DVAT-20	Deposit of DVAT TDS for the month of Feb
15-03-2014	Providend Fund	Electronic Challan cum Return (ECR)	E-Payment of PF for Feb ( Cheque to be cleared by 20th)
15-03-2014	D-VAT	Form T-2	Submission of details regarding interstate purchase before physical entry of goods in delhi
18-03-2014	Income Tax	Challan No. ITNS-280	Payment of Advance Income Tax : Companies & Others (100%)
21-03-2014	ESI	ESI Challan	Payment of ESI of Feb
21-03-2014	M-VAT	MVAT Challan	Payment of VAT & WCT TDS under MVAT for Feb
21-03-2014	D-VAT	DVAT-20 & Central	Deposit of VAT & CST Tax for Feb
21-03-2014	M-VAT	Form 231-235 & CST 1	Submission of MVAT return for Feb
22-03-2014	D-VAT	DVAT- 43	Issue of DVAT certificate for deduction made in Feb
31-03-2014	Service Tax	Challan No.GAR-7	Payment of Service Tax for the month/quarter ended Mar
31-03-2014	Excise	Challan No.GAR-7	Payment of Excise duty for the month/quarter ending march
31-03-2014	Income Tax	ITR 1 to 7	Due date of filing of return in respect of previous year 2012-13 who failed to file return on due dates
31-03-2014	Wealth Tax	Form No. BA	Due date of filing of return in respect of previous year 2012-13 who failed to file return on due dates
31-03-2014	Professional Tax	MTR - 6	Payment of Monthly Maharashtra Profession Tax for Mar (Liability equal to more than Rs. 50,000) and for Mar - Feb (Liability upto Rs. 50,000)
31-03-2014	Income Tax	Return No. 24Q/26Q	Extended due date for TDS/TCS Returns of Govt. Deductors for FY 2012-13 (2nd to 4th Quarter), FY 2013-14 (1st to 3rd Quarter)
31-03-2014	Professional Tax	Form No. IIIB	Return of Monthly Maharashtra Profession Tax for Mar (Liability equal to more than Rs. 50,000) and for Mar - Feb (Liability upto Rs. 50,000)
31-03-2014	D-VAT	Form No. 16 & 1	Due date for filing Revised Returns for all the quarters of 2012-13

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