Dear Seniors, I searched on Cite, but could not find anything related to my query.
Brief about our company policy:
We follow the same block of 4 years, where 1 and 3 are taxable(where bills are required and if not then total taxable) and 2 and 4 are nontaxable (where no bills are required)
Q 1: Employees want to make yearly entitled LTA pay on monthly basis(Annual LTA/12) -- Can we do or not? If Yes, then incase any employee produce the actual bill for travel during the calendar year then s/he will get Tax benefit on produced bills and else will be taxable. Eg. 10000 yearly entitlement and employee produced tickets for 5000 then his 5000 thousand will be taxable and 5000 thousand will nontax
Ans:
Q 2: In case the employee did not claim LTA in Nontaxable year and he claims LTA in next year Taxable year without bills, will the total accumulated amount be liable for Tax or previous year nontaxable amount will be exempted?
From India, Mumbai
1Brief about our company policy:
We follow the same block of 4 years, where 1 and 3 are taxable(where bills are required and if not then total taxable) and 2 and 4 are nontaxable (where no bills are required)
Q 1: Employees want to make yearly entitled LTA pay on monthly basis(Annual LTA/12) -- Can we do or not? If Yes, then incase any employee produce the actual bill for travel during the calendar year then s/he will get Tax benefit on produced bills and else will be taxable. Eg. 10000 yearly entitlement and employee produced tickets for 5000 then his 5000 thousand will be taxable and 5000 thousand will nontax
Ans:
Q 2: In case the employee did not claim LTA in Nontaxable year and he claims LTA in next year Taxable year without bills, will the total accumulated amount be liable for Tax or previous year nontaxable amount will be exempted?
From India, Mumbai
Dear ...
The Income Tax Act considers availing of LTA/LTC amount exempted every alternate years. It seems that your company policy is formulated in line with it. When yr company policy is clear about taxability of LTA payment in first & third year, there should not be any confusion of production of bills. The employee is entitled to tax exemption for the spent amount of LTA only based on bills. Secondly, is the employer ready to pay LTA on monthly basis from the cash flow point of view? If YES, taxability provision stands.
It is clear that if the employee does not avail LTA in one year, he loses the entitlement alongwith tax benefit sync with IT Act.
From India, Mumbai
The Income Tax Act considers availing of LTA/LTC amount exempted every alternate years. It seems that your company policy is formulated in line with it. When yr company policy is clear about taxability of LTA payment in first & third year, there should not be any confusion of production of bills. The employee is entitled to tax exemption for the spent amount of LTA only based on bills. Secondly, is the employer ready to pay LTA on monthly basis from the cash flow point of view? If YES, taxability provision stands.
It is clear that if the employee does not avail LTA in one year, he loses the entitlement alongwith tax benefit sync with IT Act.
From India, Mumbai
Dear Seniors,
Q 1: Employees want to make yearly entitled LTA pay on monthly basis(Annual LTA/12) -- Can we do or not? If Yes, then incase any employee produce the actual bill for travel during the calendar year then s/he will get Tax benefit on produced bills and else will be taxable. Eg. 10000 yearly entitlement and employee produced tickets for 5000 then his 5000 thousand will be taxable and 5000 thousand will non tax
Ans: As per IT Act for LTA payment / reimbursement travel can not be pre assumed so before travel it can not be paid monthly. It it is done then it would be taxable. Once the provision is made for 02 times in block year then it has to 02 times in block years for tax exemption purpose otherwise with taxable burden LTA component can be shell out monthly
Q 2: Incase employee did not claim LTA in Non taxable year and he claims LTA in next year Taxable year without bills, will the total accumulated amout be liable for Tax or previous year non taxable amount will be exempted?
Ans : There is no question of taxable year or taxable year only for 02 times employee is eligible to get the reimbuesement tax free....
From India, Pune
Q 1: Employees want to make yearly entitled LTA pay on monthly basis(Annual LTA/12) -- Can we do or not? If Yes, then incase any employee produce the actual bill for travel during the calendar year then s/he will get Tax benefit on produced bills and else will be taxable. Eg. 10000 yearly entitlement and employee produced tickets for 5000 then his 5000 thousand will be taxable and 5000 thousand will non tax
Ans: As per IT Act for LTA payment / reimbursement travel can not be pre assumed so before travel it can not be paid monthly. It it is done then it would be taxable. Once the provision is made for 02 times in block year then it has to 02 times in block years for tax exemption purpose otherwise with taxable burden LTA component can be shell out monthly
Q 2: Incase employee did not claim LTA in Non taxable year and he claims LTA in next year Taxable year without bills, will the total accumulated amout be liable for Tax or previous year non taxable amount will be exempted?
Ans : There is no question of taxable year or taxable year only for 02 times employee is eligible to get the reimbuesement tax free....
From India, Pune
Your suggestion required in LTC.
Case: We are planning to change salary structure in our company, As per recent salary structure, LTC amount is mentioned as 1 month basic salary.
Since this is a component, where employees can save tax.
So considering Tax Saving point of view, we have given option to employees that they can make LTC amount, upto maximum of 2 months basic.
As per our current practice, we are considering calendar year(Jan ~ Dec) for LTC and paying LTC amount along with Mar salary on the base of last Dec Salary paid
(in other way, Salary increment is being done from 1st April.
For example: LTC paid in March 2013 for the period of Jan'12 to Dec'12. but as per salary increment, salary changed in April'12, and employee got paid as per April'12 basic for whole year.
Is this right practice, I feel no.
My suggestion is: if our observation period is Jan to Dec and Increment is being done from April, so LTC amount should be paid as below
LTC component from Jan'12 to Mar'12 was 10000 and with Apri'12 increment it changed to 14000
so it should be (10000/12*3+14000/12*9)
Need your suggestion: Please suggest me for the same.
Since we are planning to revise salary structure from October and option given to employees for opting maximum upto 2 times of basic as LTC component. In this case if we follow our current practice which is last Dec salary paid so company will be loss.
My suggestion is: (10000/12*3+14000/12*6+28000/12*3) if we are changing structure from October
As suggested by my ex-HR manager, we pay as per last Dec salary paid only.
I need your expert advice for the same along with artifact. Because we are Korean based MNC, here everything is based on actual artifact.
I will be highly obliged for the same. Or better if we can talk on this issue on phone.
Regards,
Kunal Kumar
From India, Mumbai
Case: We are planning to change salary structure in our company, As per recent salary structure, LTC amount is mentioned as 1 month basic salary.
Since this is a component, where employees can save tax.
So considering Tax Saving point of view, we have given option to employees that they can make LTC amount, upto maximum of 2 months basic.
As per our current practice, we are considering calendar year(Jan ~ Dec) for LTC and paying LTC amount along with Mar salary on the base of last Dec Salary paid
(in other way, Salary increment is being done from 1st April.
For example: LTC paid in March 2013 for the period of Jan'12 to Dec'12. but as per salary increment, salary changed in April'12, and employee got paid as per April'12 basic for whole year.
Is this right practice, I feel no.
My suggestion is: if our observation period is Jan to Dec and Increment is being done from April, so LTC amount should be paid as below
LTC component from Jan'12 to Mar'12 was 10000 and with Apri'12 increment it changed to 14000
so it should be (10000/12*3+14000/12*9)
Need your suggestion: Please suggest me for the same.
Since we are planning to revise salary structure from October and option given to employees for opting maximum upto 2 times of basic as LTC component. In this case if we follow our current practice which is last Dec salary paid so company will be loss.
My suggestion is: (10000/12*3+14000/12*6+28000/12*3) if we are changing structure from October
As suggested by my ex-HR manager, we pay as per last Dec salary paid only.
I need your expert advice for the same along with artifact. Because we are Korean based MNC, here everything is based on actual artifact.
I will be highly obliged for the same. Or better if we can talk on this issue on phone.
Regards,
Kunal Kumar
From India, Mumbai
Dear Kunal,
I feel your calculations are correct, for which you relied basically on the actual payment of salary for the period covered i.e. salary drawn from the months of January to December but paid in March-April next year.
But I feel your payment on lumpsum basis on any calculation towards LTC without production of any proof of travel is not sync with the provisions of the Income Tax Act. The Income Tax Act provides exemption of actual amount spent on travel based on production of tickets/receipts. The excess amount paid or the total amount in case of non-utilisation is taxable. Please check up with your tax consultants to arrive at the methodology of payment to employees so that they get exemptions under IT Act.
Regards
From India, Mumbai
I feel your calculations are correct, for which you relied basically on the actual payment of salary for the period covered i.e. salary drawn from the months of January to December but paid in March-April next year.
But I feel your payment on lumpsum basis on any calculation towards LTC without production of any proof of travel is not sync with the provisions of the Income Tax Act. The Income Tax Act provides exemption of actual amount spent on travel based on production of tickets/receipts. The excess amount paid or the total amount in case of non-utilisation is taxable. Please check up with your tax consultants to arrive at the methodology of payment to employees so that they get exemptions under IT Act.
Regards
From India, Mumbai
Thanks for you all suggestions.
I am linking one more query to the same.
Can employer take claims of LTC without any supporting documents?
Without any supporting docs means: No travel ticket, just getting one company prescribed format filled by employees no other docs to support the same.
As per me, No. In case of No, what are all consequences?
And in case Income Tax catches the same, who will be responsible "Employer or Employee". I feel both but employer is more liable because they are providing Form-16 to the employee.
Need expert advice for the same.
Regards
From India, Mumbai
I am linking one more query to the same.
Can employer take claims of LTC without any supporting documents?
Without any supporting docs means: No travel ticket, just getting one company prescribed format filled by employees no other docs to support the same.
As per me, No. In case of No, what are all consequences?
And in case Income Tax catches the same, who will be responsible "Employer or Employee". I feel both but employer is more liable because they are providing Form-16 to the employee.
Need expert advice for the same.
Regards
From India, Mumbai
Many employers are under the impression that they need not collect proof of leave travel. However, in the TDS circular issued in the recent past, the Income Tax Department has specified that employers need to collect and scrutinize the proof of travel (ticket etc.) before granting tax exemption. The relevant excerpt from the Income Tax Department TDS circular (for 2013-14) is as follows.
"Obligation of the employer –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."
All employers should collect proof of travel from employees if they wish to grant tax exemption on LTA. If an employer does not collect travel proof, the organization will be deemed to have not adhered to the TDS rules and the department can initiate action accordingly.
Please take a look at our blog post for more information on LTA tax exemption: Tax Exemption on Leave Travel Allowance (LTA) - Part I « Hinote Systems - Outsourced Payroll Services & Online Payroll Software Hinote Systems – Outsourced Payroll Services & Online Payroll Software
From India, Madras
"Obligation of the employer –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."
All employers should collect proof of travel from employees if they wish to grant tax exemption on LTA. If an employer does not collect travel proof, the organization will be deemed to have not adhered to the TDS rules and the department can initiate action accordingly.
Please take a look at our blog post for more information on LTA tax exemption: Tax Exemption on Leave Travel Allowance (LTA) - Part I « Hinote Systems - Outsourced Payroll Services & Online Payroll Software Hinote Systems – Outsourced Payroll Services & Online Payroll Software
From India, Madras
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