Leave Travel Concession rules: How draft Income tax rules will calculate LTA from 2026

Leave Travel Concession (LTC) continues to be one of the most widely used tax benefits for salaried employees in India, and with the new Income Tax Act, 2025 scheduled to come into force from April 1, 2026, there has been widespread curiosity over whether the familiar LTC framework would undergo major changes. The draft Income-tax Rules, 2026, have now brought clarity — and for most employees, the outcome is reassuring. The core structure of LTC exemption remains largely unchanged, even as compliance requirements become more formalised.

Under the existing Income Tax Act, 1961, Section 10(5) allows salaried employees to claim tax exemption on Leave Travel Concession (also known as Leave Travel Allowance or LTA) for domestic travel within India. Currently, employees are entitled to claim exemption for two journeys in a block of four calendar years, with the present block running from 2022 to 2025. The exemption is available only on travel fare and does not extend to expenses such as hotel accommodation, food, sightseeing, or local conveyance.

Eligibility

Eligible family members under LTC include the employee’s spouse, children, and dependent parents or siblings. The exemption is capped at the lower of the actual travel cost incurred or the LTA provided by the employer. Mode-specific limits also apply: economy class fare of a national carrier for air travel by the shortest route, AC First Class rail fare where rail connectivity exists, and first class or deluxe class fare where public transport is available. In cases where no recognised public transport exists, the cost is calculated on a per-kilometre basis.

One unutilised journey can be carried forward to the first year of the next block, and the two-child restriction—applicable to children born after October 1, 1998—continues, with exceptions for multiple births. Importantly, the LTC exemption is available only under the old tax regime, subject to the submission of valid travel proof.

The new Income Tax Act, 2025 relocates LTC provisions to Schedule III, with detailed conditions laid out under Rule 278 of the draft Income-tax Rules, 2026. The draft rules explicitly retain the two-journeys-in-a-four-year-block structure, confirming that the block beginning from calendar year 2022 remains valid. Mode-wise exemption limits have been restated and clarified, with the exemption continuing to be restricted to actual travel costs, subject to prescribed ceilings.

Air travel exemption

Under the draft rules, air travel exemption is limited to the fare admissible for the entitled class by the shortest route. For places connected by rail, AC First Class rail fare by the shortest route applies when travel is not undertaken by air. For destinations not connected by rail, first class or deluxe fare is allowed if recognised public transport exists. Where no recognised public transport is available, the exemption is capped at Rs 30 per kilometre by the shortest route—a limit that has now been explicitly codified.

Carry-forward provision

The carry-forward provision also remains intact. Employees who do not utilise LTC in a block can claim one unavailed journey in the first calendar year of the next block, without affecting the entitlement of two journeys in the new block. The two-child restriction and the exclusion of non-travel expenses such as lodging, food, and tourism activities also continue unchanged.

What’s the real shift

In essence, there is no major structural overhaul of LTC under the new law. Instead, the changes lie in clearer codification and tighter compliance. CA Hita Desai, Partner, NPV & Associates LLP, said: “The movement of the Leave Travel Concession (LTC) provisions to Schedule III read with Rule 278 of the new Act reflects continuity rather than change. The essential framework remains intact — two journeys in a block of four calendar years (2022–2025) with the facility to carry forward one unutilised journey to the succeeding year.”

She added: “For salaried taxpayers, this provides certainty and reassurance during a period of wider tax reforms. The benefit structure is familiar and predictable.”

The claim process

However, the real shift from 2026 lies not in the exemption itself, but in how it must be claimed. The draft rules introduce a more structured, evidence-based process.

Form No. 124, prescribed under Rule 205, replaces the existing Form 12BB and requires employees to submit detailed expenditure proof to employers rather than mere declarations. Additionally, Annexure A-2 mandates verifiable travel evidence such as tickets, boarding passes, and digital payment confirmations. In the absence of proper documentation, employers are required to deduct tax at source on the LTC component.

Desai noted: “The 2026 Rules also bring welcome clarity by prescribing mode-wise ceilings. The specific Rs. 30 per kilometre limit for road travel, where recognised public transport is not available, reduces interpretational disputes and ensures uniform application.”

For salaried individuals, the key takeaway is that LTC continues to be available only under the old tax regime. While the benefit itself remains intact, compliance standards are becoming more stringent. For those who travel regularly, the old regime may still offer meaningful value—provided records are maintained carefully. The message under the new framework is clear: LTC is preserved, but disciplined documentation is now essential.