Quick answer: Leave travel allowance (LTA) is a salary component that pays for an employee’s travel on leave anywhere in India. Under the old tax regime, the fare is exempt for two journeys in a block of four calendar years, under Rule 278 of the Income-tax Rules, 2026. Under the default new regime, LTA is taxed as ordinary salary.
- Only travel fares are covered. Hotels, food and local sightseeing are taxed.
- Air fares are capped at the employee’s entitled class by the shortest route, a change KPMG’s flash alert on the 2026 Rules flags.
- Where no rail or public transport connects the places, road travel is capped at ₹30 a kilometre.
- The employee files proof of travel with Form 124, which replaced Form 12BB.
How does the LTA exemption work in 2026?
The exemption covers the actual fare, up to the allowance you pay. Rule 278 sets the caps by mode of travel.
| Mode | Exempt up to |
|---|---|
| Air | Fare for the employee’s entitled class, shortest route |
| Rail | Air-conditioned first-class rail fare |
| Road, with public transport | First class or deluxe bus fare |
| Road, no public transport | ₹30 a kilometre |
The cover extends to the employee’s family, with one limit. Only two surviving children count if born after 1 October 1998. Rule 278 on the Income Tax Department site has the full text.
International trips get nothing. The rule speaks only of travel to a place in India.
Is LTA worth keeping in a 2026 salary structure?
Only for staff who choose the old regime. Section 202 of the Income-tax Act, 2025 switches the exemption off for everyone else, and most tech hires now sit on the new regime.
Suppose a Pune engineer on ₹18 lakh CTC has ₹50,000 of LTA and flies her family to Kochi for ₹42,000.
| Scenario | Exempt | Tax effect |
|---|---|---|
| Old regime, 30% slab plus cess | ₹42,000 | Saves ₹13,104 |
| New regime, 15% and 20% slabs plus cess | Nil | Pays ₹10,121 on the full ₹50,000 |
That saving rarely flips the regime choice by itself. It is too small. Our page on the old vs new tax regime shows why. So many employers now fold LTA into a flexible benefit plan, where staff can switch it on or leave it as taxable cash.
There’s a labour-law angle too. Clause (d) of section 2(y) of the Code on Wages excludes conveyance and the value of travelling concessions from wages. So LTA counts toward the excluded half under the 50% wage rule, next to house rent allowance.
Large LTA lines on a low basic can push wages up. Watch it. Check the split in our guide to salary structure in India.
How does Remunance run LTA claims for your employees?
Remunance collects tickets and boarding passes through each employee’s Form 124 declaration, tests them against Rule 278 and applies the exemption in TDS only for old-regime staff. Our payroll and document handling is ISO/IEC 27001:2022 certified. Benefits administration comes bundled with our EOR service, which supports 150+ international clients from 22 countries and a workforce that often splits between both regimes in the same team. To decide whether LTA still belongs in your India packages, book a free compensation review.
What else do people ask about LTA exemption rules?
Can I claim LTA in the new tax regime?
No. Under the default new regime, LTA is fully taxable. The exemption is available only if the employee opts for the old regime.
Can LTA be claimed for foreign travel?
No. Rule 278 covers travel on leave to any place in India, so a holiday abroad does not qualify.
How many times can LTA be claimed?
Twice in a block of four calendar years. An unused journey can sometimes carry over, subject to the timing conditions in Rule 278.