Trip that includes a foreign leg is not eligible for LTC

A recent judgement by the Supreme Court (SC) has underlined the point that Leave Travel Concession (LTC) can be offered only on travel within India.

- BINDISHA SARANG

If the trip involves a foreign leg, the employer must deduct TDS (tax deducted at source) on this payment.

In State Bank of India (SBI) versus Assistant Commissioner of Income Tax, employees of SBI undertook trips that started and ended in India. En route, however, they also visited foreign countries.

One employee, for instance, undertook the following journey: Delhi-Madurai-Colombo-Kuala Lumpur-Singapore-Colombo-Delhi.

The SBI paid LTC to such employees without deducting TDS.

The SC dismissed SBI's appeal on two grounds. One, it said, according to the rules governing LTC, travel must be done from one designated place in India to another within India.

Pallav Pradyumn Narang, partner, CNK says, "The Supreme Court has ruled that LTC is available only for travel within India. Mere starting and ending of the travel within India does not satisfy this condition."

Two, the SC said LTC should be paid for the shortest route between the two places. It ruled that SBI should have deducted TDS on LTC before paying its employees. Employees wishing to avail of LTC must ensure they comply with its rules (Rule 2B of I-T Rules).

Tax-free travel allowance

Under Section 192 (1) of the Income-Tax (I-T) Act, employers must deduct TDS before paying salary to their employees.