No, LTA exemption is not available under the new tax regime for FY 2025-26.
If you have opted for the new tax regime, any Leave Travel Allowance received from your employer is fully taxable as salary income, even if you actually travel and submit bills.
The exemption under Section 10(5) of the Income Tax Act applies only when you choose the old tax regime.
This article explains what LTA is, why employers still include it in salary structures, the practical difference between receiving an allowance and claiming a tax exemption, and how the new regime changes your taxable salary calculation.
It also covers Form 16 treatment, common mistakes, and a numerical example.
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What Is LTA and How Does It Work?
LTA (Leave Travel Allowance) is a salary component some employers provide to cover eligible domestic travel costs.
The idea is that if an employee travels within India while on leave, the employer’s LTA payment can be structured to qualify for tax exemption—but only under the old tax regime.
Employers include LTA as part of a Flexible Benefit Plan (FBP) or cost-to-company (CTC) structure.
The employee can allocate a portion of their package to LTA, then submit travel bills to substantiate the claim. If the conditions are met, the LTA amount is not taxed.
The key distinction: LTA is an allowance, not a reimbursement. An allowance is a fixed salary component; a reimbursement repays actual expenses.
Only allowances that meet specific statutory conditions qualify for exemption. Under the new regime, LTA fails that test.
LTA Exemption in New Tax Regime – Is It Available?
No. LTA exemption under Section 10(5) is not available in the new tax regime. This applies for FY 2025-26 (AY 2026-27).
| LTA Treatment | Old Tax Regime | New Tax Regime |
|---|---|---|
| LTA exemption | Available under Section 10(5), subject to conditions | Not available |
| Eligible travel conditions | Domestic travel, twice in a 4-year block, limited to actual travel fare | Not applicable—no exemption exists |
| Amount not qualifying for exemption | Taxable as salary | Fully taxable as salary |
Under the old regime, LTA exemption is governed by Section 10(5) read with Rule 2B of the Income Tax Rules.
It covers actual travel costs by air, rail, or public transport for the employee and eligible family members, for up to two journeys in a block of four calendar years. Hotel, food, and sightseeing expenses never qualify.
Under the new regime, none of this applies. The LTA component is added to your gross salary and taxed at your applicable slab rate.
A common misconception: seeing “LTA” in your CTC or salary structure does not mean the amount is tax-free. The label is irrelevant if the statutory exemption is unavailable under your chosen regime.
Is LTA Allowed in New Tax Regime for FY 2025-26?
The word “allowed” needs clarification.
Is LTA allowed to be part of your salary? Yes. Employers can label a portion of your CTC as LTA. There is no prohibition on the component existing.
Is LTA exemption allowed? No. The exemption is unavailable.
Does receiving LTA reduce taxable salary? No. Under the new regime, the full LTA amount is included in your taxable salary.
Does travelling during leave automatically create a tax exemption? No. The travel itself does not create an exemption if the regime does not permit it.
Can you claim the amount merely because the employer labels it LTA? No. The employer’s label does not override the statutory exemption framework.
The practical result: if your salary structure shows LTA of ₹50,000 and you opt for the new regime, that ₹50,000 is added to your taxable income. Submitting travel bills to your employer does not change this outcome.
Can We Claim LTA in New Tax Regime? Practical Example
Consider an employee with the following annual salary for FY 2025-26:
- Basic salary: ₹8,00,000
- LTA component: ₹50,000
- Special allowance: ₹2,50,000
- Standard deduction: ₹75,000 (available under the new regime)
Step-by-step tax treatment:
- Total salary including LTA: ₹8,00,000 + ₹50,000 + ₹2,50,000 = ₹11,00,000
- LTA exemption: ₹0 (not available in new regime)
- Standard deduction: –₹75,000
- Net taxable salary: ₹10,25,000
If this employee had opted for the old regime and met LTA conditions, the ₹50,000 LTA could have been exempt (subject to actual travel proof). Under the new regime, that benefit is unavailable.
Salary component → exemption eligibility → taxable amount → impact on taxable income: LTA of ₹50,000 → No exemption → ₹50,000 fully taxable → increases taxable salary by ₹50,000.
LTA vs Business Travel Reimbursement and Other Travel Payments
LTA
A salary component intended for eligible leave travel. Under the new regime, fully taxable because the exemption does not apply.
Business Travel Reimbursement
When an employer reimburses actual travel expenses incurred for official business purposes, the payment is generally treated as an expense recovery, not salary income—provided the reimbursement is genuine and properly documented.
This is different from LTA, which is a salary allowance.
This is a critical distinction. A client visit or official tour with documented expenses is not the same as LTA. Do not confuse the two.
Personal Travel Expenses
A personal holiday does not create a tax deduction or exemption merely because you travelled during leave.
Personal expenses are not claimable unless a specific provision permits it. Under the new regime, no LTA exemption exists for personal travel.
How LTA Affects Salary, Form 16 and Tax Calculation
LTA typically appears in the salary structure as a named component within CTC.
The CTC figure and taxable salary differ because CTC includes employer contributions (like PF) and components that may or may not be exempt.
In Form 16, your employer reports salary as per Section 17(1), including the LTA component. Under the new regime, the LTA amount is part of taxable salary—there is no exempt portion to report separately.
What to check:
- Review your salary breakup to confirm the LTA amount.
- Check Form 16 Part B to see how the LTA is treated in your taxable income calculation.
- If you opted for the new regime, verify that no LTA exemption has been incorrectly applied.
- If you expected an exemption but the new regime does not allow it, the amount should appear as taxable income.
Under the current rules, the LTA exemption under Section 10(5) is available only when the old tax regime is selected. There is no separate exemption mechanism for LTA under the new regime.
Common LTA Mistakes Employees Make
- Assuming every LTA amount is tax-free. The label does not create an exemption. The regime determines availability.
- Assuming travel automatically creates an exemption. Travelling during leave does not generate a tax benefit if the regime does not permit LTA exemption.
- Confusing LTA with business travel reimbursement. Official travel reimbursements follow different rules and are generally not taxable when properly documented. LTA is a salary allowance.
- Comparing CTC directly with taxable salary. CTC includes components that are always taxable under the new regime. LTA is one of them.
- Ignoring the selected tax regime. The new regime is the default from FY 2025-26. If you do not actively choose the old regime, you cannot claim LTA exemption.
- Assuming the employer’s salary breakup guarantees tax exemption. The employer’s structure reflects payroll design, not necessarily tax eligibility.
- Entering an LTA exemption in the ITR without checking applicable rules. Claiming an exemption that the new regime does not permit can create a mismatch with employer reporting.
Key Takeaways
- LTA exemption under Section 10(5) is not available in the new tax regime. The full LTA amount is taxable as salary.
- Having LTA in your CTC or salary structure does not make it tax-free. The exemption depends on the regime, not the label.
- The old regime permits LTA exemption for eligible domestic travel, up to two journeys in a four-year block, subject to conditions.
- Check Form 16 to confirm how LTA is treated in your taxable income calculation. Under the new regime, no exemption should appear.
- Business travel reimbursements are different from LTA. Official travel with proper documentation is generally not taxed as salary income.
Frequently Asked Questions
Is LTA exemption available in the new tax regime for FY 2025-26?
No. The LTA exemption under Section 10(5) is not available if you opt for the new tax regime. The entire LTA amount received from your employer is treated as taxable salary.
This applies regardless of whether you actually travelled or submitted bills.
Can we claim LTA in new tax regime?
You cannot claim the LTA exemption under the new regime. The allowance may still appear in your salary structure, but it is fully taxable. The exemption is only claimable under the old tax regime, subject to the prescribed conditions.
Is LTA applicable in new tax regime if it is part of CTC?
Yes, LTA can be part of your CTC, but the tax exemption is not applicable. The amount is added to your taxable salary. Being part of CTC does not override the statutory regime rules.
What happens to LTA received from an employer under the new regime?
The LTA is included in your gross salary and taxed at your applicable slab rate. No exemption is available, even if you travelled and submitted proof to your employer. Your employer’s payroll should treat it as fully taxable.
Can business travel reimbursement be treated like LTA?
No. Business travel reimbursement for genuine official purposes is generally treated as an expense recovery, not salary income, when properly documented.
LTA is a salary allowance with a specific exemption provision (Section 10(5)) that does not apply under the new regime. The two should not be confused.
Disclaimer
This article is for general informational purposes only and does not constitute professional tax or financial advice.
Tax rules are subject to change, and individual circumstances may vary. Please consult a qualified tax professional for guidance specific to your situation.
