Employers Obligation regarding LTA claims of employees

Overview of Leave Travel Allowance & its tax benefits

Overview of Leave Travel Allowance (LTA) and its tax benefits. However, some aspects may need updates or clarifications based on recent tax regulations. Here are a few key points to consider:

• Block Period Update – The current block period is 2022-2025, not 2014-2017. Employees should ensure they are considering the correct block period when planning LTA claims.
• Proof of Travel: While employers may not always require proof of travel, the Income Tax Department can demand documentary evidence during an assessment. Employees should retain valid travel documents like tickets, boarding passes, and invoices.
• LTA on Job Change: If an employee switches jobs, their new employer may not grant LTA benefits for a journey claimed with the previous employer unless the previous employer did not provide an LTA exemption for that block period. Employees should maintain records to avoid discrepancies.
• Restriction on the Number of Claims Per Year: An individual can claim two journeys in a block of four years, but not both in the same financial year. However, spouses working in different organizations can coordinate LTA claims.

What is the obligation of employers regarding the LTA claims of employees?

As per CBDT Circular No. 8/2013, employers must verify that employees submit proof of travel (tickets, boarding passes, etc.) for Leave Travel Allowance claims.  The circular’s directive places an additional compliance burden on employers that the Supreme Court’s decision had deemed unnecessary. However, they are not required to authenticate the documents beyond reasonable checks. The Circular emphasizes the employer’s responsibility to ensure compliance but also limits their liability to reasonable verification

Larsen & Toubro Case (Civil Appeal No. 993/2005): The Circular does not fully align with the Supreme Court’s judgment in the Larsen & Toubro case. In that judgment, the Court ruled that employers should not be burdened with verifying employees’ claims beyond reasonable steps. The Circular, however, adds an additional compliance burden on employers to verify proof of travel, which can be seen as a divergence from the Court’s stance.

If proof is not submitted, the employer must treat the Leave Travel Allowance amount as taxable income and deduct TDS accordingly. The circular places an additional compliance burden on employers, which differs from the Supreme Court ruling in the Larsen & Toubro case (Civil Appeal No. 993 of 2005).

Tax Dept. observed a concerning rise in fraudulent refund LTA claims

The Income Tax Department has observed a concerning rise in fraudulent refund claims, particularly among security personnel, including members of the Delhi Police. These claims often involve fabricated deductions and exemptions, such as false House Rent Allowance or Leave Travel Allowance claims, leading to inflated refunds.

• By adhering to these guidelines, taxpayers can avoid legal complications and contribute to the integrity of the tax system. Ensure that all income and deductions reported in your ITR are accurate and supported by valid documentation. and Avoid False Claims via Refrain from claiming deductions or exemptions to which you are not entitled.
• Consequences of Filing False Claims: Taxpayers found making exaggerated or bogus claims may face penalties up to 200% of the tax amount wrongfully claimed. In severe cases, individuals may face prosecution, which can result in imprisonment. and also face delayed refunds: False claims can lead to delays in the processing of legitimate refunds.

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