Here’s how the Indian tax code boosts the tourism industry

Nov 30, 2018 | 3 months ago | Read Time: 3 minutes | By iKnowledge Team

Tax revisions, particularly the Leave and Travel Allowance, have enabled Indians to travel farther and wider than ever before.

Credit: Tripoto

In the recent past, the Indian travel industry has experienced a boom both in terms of foreign and domestic tourism.

Tax revisions, particularly the Leave and Travel Allowance, have enabled Indians to travel farther and wider than ever before. Employees who are eligible for Leave and Travel Allowance (LTA), as part of their cost-to-company (CTC), can claim reimbursement of expenses incurred over the course of your travels.

At the end of the year, during tax calculation on salary and filing for income tax returns, you can claim reimbursement for such expenses by producing the proof of travel either to the tax department or your employer.

 

But what exactly does your regular LTA entail?

For someone at the start of their career who wants to know how to save tax in India, the LTA is a great way to begin their tax savings journey. It can be claimed whenever you apply for a leave from your company and take a trip during the said leave. While it covers the cost of your travel as well as your spouse, children and parents, LTA does not cover accommodation, sightseeing or food-related expenses incurred during your vacation. But it is heartening to know that regardless of whether you’re travelling by air, rail or bus, the travel costs to and from the destination will qualify for tax exemption under the LTA.

Although Leave and Travel Allowance usually covers domestic travel, recent amendments have extended its scope to some of our immediate neighbouring countries. With a view to improving tourism in our country, the government in 2015 introduced amendments to the Income Tax Act of 1922, by revising Leave and Travel Allowance significantly. The amendment allowed government employees to avail the LTA scheme while travelling to all domestic destinations, as well as four South Asian Association of Regional Cooperation (SAARC) countries including Nepal, Maldives, Bangladesh and Bhutan[1]. This also resulted in a reciprocal influx of foreign tourists from these countries which further contributed to the total revenue earned through the tourism sector.

 

The fine print and a gross oversight

The LTA is available for a maximum of 2 journeys over a four-year-phase, with the current phase applicable from 2018 to 2021[2]. On the other hand, if you haven’t used up your LTA quota at one go, you can carry over the remaining amount to the next block, where you can get three paid leaves/journeys under the scheme.[3]

However, LTA can cover only the amount promised by the contract; if the expenses surpass the stipulated amount, you cannot claim exemption for the excess.

Credit:H&R Block

 

While discussing the factors that contributed to the thriving tourism sector in our country, we often treat the role and evolution of the Leave and Travel Allowance as an oversight. The LTA encourages salaried Indians to travel to different parts of the country, boosting tourism significantly.

The LTA is undeniably a great way to increase your take-home salary. Aegon Life’s financial planning basics can help shed more light on the tax saving aspects of the Leave and Travel Allowance. Wise investments in schemes like iMaximize can also enable you to save up for the distant future and allow you to take vacations even after retirement. ULIPs like these are eligible for a total fund return on the maturity date and further enable you to switch, redirect and withdraw your funds based on immediate needs.

That said, Leave and Travel Allowances not only provided an invisible fillip to the travel culture among India’s young wage-earners, but have also helped the tourism industry find its wings and finally take off. Today, Indian taxpayers are grateful for the inclusion of travel costs within their employment contracts, and together with the abundance of insurance and travel service providers, they can now apply and plan for trips more confidently and spontaneously.

II/Oct 2018/4486


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