Scope: returns governed by the 1961 Act
This guide covers income through FY 2025–26 (AY 2026–27). It uses section 10(5) of the Income-tax Act, 1961 and Rule 2B of the Income-tax Rules, 1962. For salary from 1 April 2026 onward, check the Income-tax Act, 2025 and the applicable 2026 Rules separately. A calendar block for journeys does not determine which Act governs a return.
When domestic travel qualifies
Section 10(5) covers travel concession or assistance received or due from an employer for the employee and eligible family in connection with leave travel within India. It also covers qualifying domestic travel after retirement or termination where the concession is from the employer or former employer. The exemption cannot exceed the qualifying amount received or due, actual eligible travel expenditure or the Rule 2B fare ceiling. Hotel stays, meals, sightseeing and travel insurance do not qualify as journey fare. Section 115BAC excludes this exemption in the new tax regime. The examples assume the old regime applies and the journey limit and other conditions are met unless stated.
Rule 2B fare ceilings
| Route or mode | Rule 2B provision | Ceiling by the shortest route |
|---|---|---|
| Air travel | Rule 2B(1)(i) | Economy airfare of the national carrier, even if the traveller uses another airline. |
| Rail-connected origin and destination; travel by any mode other than air | Rule 2B(1)(ii) | Air-conditioned first-class rail fare. |
| Origin and destination, or a part of the route, not connected by rail; recognised public transport exists | Rule 2B(1)(iii)(A) | First-class or deluxe fare, as applicable, on that transport. |
| Origin and destination, or a part of the route, not connected by rail; no recognised public transport exists | Rule 2B(1)(iii)(B) | Equivalent air-conditioned first-class rail fare for the journey distance. |
Compare the applicable ceiling with the documented actual expense. A benchmark fare alone does not prove expenditure, including for a private vehicle. Keep route evidence where a direct service does not exist or a through itinerary combines several modes.
Family and journey limits
Family includes the employee’s spouse and children. Parents, brothers and sisters qualify only if wholly or mainly dependent on the employee. Rule 2B(4) generally limits the exemption to two surviving children, with exceptions for children born before 1 October 1998 and multiple births after one child. For example, one child followed by twins can fall within the multiple-birth exception.
Rule 2B(2) generally allows two eligible journeys per four-calendar-year block, counted from 1986. The 2022–2025 block ended on 31 December 2025. In the part of calendar year 2026 that falls within FY 2025–26, the next block is 2026–2029. Under Rule 2B(3), read with the Department’s carry-over guidance, one unused occasion can qualify if first availed in the first calendar year of the immediately succeeding block. An eligible carried-over journey does not use one of the succeeding block’s two regular occasions. The historical AY 2021–22 cash alternative had separate conditions and could affect the earlier block count.
Worked case studies
Case 1: Domestic air travel and resort costs
In December 2024, Vikram takes a seven-day family trip to Port Blair and Havelock. He receives ₹1,60,000 in LTA. His Delhi–Port Blair return airfare is ₹1,18,000; hotel costs are ₹95,000 and a combined scuba and local cruise charge is ₹32,000. Total expenditure is ₹2,45,000. Assume the eligible airfare is within the documented national-carrier shortest-route ceiling and no part of the recreational package is separately substantiated as eligible journey fare. The exemption is ₹1,18,000; the remaining ₹42,000 of LTA is taxable.
Case 2: Domestic leg of a foreign holiday
Ananya receives ₹1,00,000 for a single holiday itinerary from Bengaluru through Kolkata to Bali. The domestic leg costs ₹28,000. The trip is an overseas journey, so that leg is not carved out as a qualifying domestic trip. The exemption is nil; the ₹1,00,000 received remains taxable.
Case 3: Carry-over from 2018–2021
Sameer used one regular journey in 2019 and had one unused occasion at the end of 2018–2021. Assume he did not use the AY 2021–22 cash alternative. His January 2022 trip can use the carried-over occasion, while trips in December 2023 and November 2025 can use the two regular 2022–2025 occasions. This is three eligible occasions, subject to the fare and assistance limits on each claim.
Case 4: Two spouses with separate claims
The Kulkarni spouses take four separate family trips, one in each year from 2022 to 2025. Assume each receives qualifying assistance from their own employer, incurs and documents eligible expense for two different trips and meets the other conditions. Mr. Kulkarni claims for 2022 and 2023; Mrs. Kulkarni claims for 2024 and 2025. Two occasions per individual give four distinct claim opportunities. Do not count the same expense twice or treat all vacation costs as exempt.
Case 5: Circuitous air itinerary
Assume the employee incurs ₹45,000 for Delhi–Mumbai–Bengaluru–Srinagar and receives ₹45,000 in LTA. The documented national-carrier economy fare by the shortest route is ₹14,000 for the comparable journey. The exemption is ₹14,000; ₹31,000 of the allowance is taxable. The excess ticket cost by itself is not additional salary.
Case 6: Parent dependency
An employee travels to Kerala with a spouse, two eligible children and a 65-year-old father receiving ₹8,00,000 annual pension. Assume the father meets his own living costs and is not wholly or mainly dependent on the employee. Exclude his fare. Pension and age are facts to consider; section 10(5) does not prescribe a numerical pension cut-off. The other fares are still subject to evidence and the statutory caps.
Case 7: Rail, air and ferry in one journey
A family travels Delhi–Chennai by first-class AC rail, Chennai–Port Blair by economy air and then to Havelock by government ferry. Total fare is ₹1,45,000. Obtain the fare breakup, determine the relevant shortest-route benchmarks and test the ferry leg under the applicable Rule 2B provision. The total is an outer limit on actual fare, not the exempt amount. Without the eligible fare, benchmark and LTA amounts, the exemption cannot be calculated.
Case 8: One invoice for a package tour
A Kashmir holiday package costs ₹1,80,000, including flights, hotel, meals and local shikara rides. The invoice has no fare breakup. Do not use ₹1,80,000 as eligible expenditure. Ask for itemised fare evidence, such as a supplier statement or identifiable airline ticket receipts, and apply the shortest-route ceiling. Until eligible fare is established, there is no supported exempt amount for payroll. Rule 2B does not prescribe one exclusive invoice format.
FAQs
1. Which block should I check?
Use the actual travel date. The 2022–2025 block ended on 31 December 2025; January to March 2026 falls in the next calendar block and remains in FY 2025–26 for income-tax purposes.
2. Is LTA exempt under section 115BAC?
No. The new regime excludes section 10(5).
3. Does a weekend trip qualify without leave?
Establish the connection with proceeding on leave. The statute does not mandate one or two days of earned leave. Check the facts and the employer’s leave and reimbursement policy separately.
4. Is a private car or taxi automatically excluded?
No blanket exclusion follows from the mode alone. For a rail-connected journey otherwise than by air, Rule 2B(1)(ii) uses the first-class AC rail ceiling. Establish the actual eligible expense and satisfy the remaining conditions.
5. What does Form 12BB require?
For salary TDS under the 1961 Act, Rule 26C and Form 12BB require evidence of travel expenditure. Retain appropriate tickets, receipts and supporting itinerary or leave evidence. An employer may specify proof for its process; do not confuse a checklist with a statutory list of compulsory documents.
6. What if no travel occurred?
For ordinary LTA, there is no travel exemption without a qualifying journey. Include any allowance actually paid or due as taxable salary, as applicable. The employer’s section 192 deduction is based on estimated taxable salary, rather than a separate flat LTA tax.
Foreign legs and employer verification
In State Bank of India v. Assistant Commissioner of Income Tax, Civil Appeal 8181 of 2022, decided 4 November 2022, the Supreme Court upheld the finding against an employer that excluded reimbursements for circuitous journeys involving a foreign leg when computing salary TDS. The domestic endpoints did not turn the foreign leg into travel within India. Apply the statutory shortest-route test without assuming a universal rule based on the farthest city on a multi-stop itinerary.
Payroll and return reconciliation
- Record travel dates, applicable calendar block, any carry-over and the employee’s eligible regime.
- Retain leave and itinerary evidence, family eligibility and the actual fare by traveller or leg, where relevant.
- Apply the fare ceiling and reconcile the exempt amount with assistance received or due.
- Submit Form 12BB and supporting evidence to payroll. Reconcile gross salary and the supported section 10(5) amount in Form 16 Part B and the salary section of the applicable return, such as Schedule S in ITR-2. Recheck any salary TDS shortfall under the applicable provisions. Missing paperwork alone does not establish an automatic penalty.
Sources
- Income-tax Act, 1961: sections 10(5), 115BAC and 192
- Income-tax Rules, 1962: Rule 2B text
- Income Tax Department: guidance on fare caps and carry-over
- Supreme Court judgment: State Bank of India v. ACIT, 2022 INSC 1165
- CBDT Notification 30/2016: Rule 26C evidence
- Form 12BB under Rule 26C
- Income Tax Department: which Act governs AY 2026–27
- AY 2026–27 ITR-2: Schedule S validation