In a major update for salaried taxpayers in India, the Central Board of Direct Taxes (CBDT) has confirmed that Leave Travel Allowance (LTA) will now be taxable under the new income tax regime, which came into effect from April 1, 2025. Those who opt for the new tax structure will not be eligible for LTA exemption, even if they provide travel bills and meet previous exemption conditions.
What Has Changed in the New Tax Regime Update?
Under the old regime, employees were allowed to claim tax exemption on LTA twice in a block of four years, as per Section 10(5) of the Income Tax Act. This exemption could be availed only for travel within India and upon submission of valid travel proofs such as tickets and boarding passes. However, this benefit is not available under the new regime.
The Union Budget 2025 increased the tax-free income slab up to INR 12 lakh and simplified the overall tax structure. But in exchange, it removed almost all major deductions and exemptions, including:
- Leave Travel Allowance (LTA)
- House Rent Allowance (HRA)
- Standard deduction
- Section 80C investments (like PF, ELSS)
- Medical insurance under Section 80D
Tax experts say this change could affect middle-class salaried individuals who regularly claimed LTA to save tax. Now, if you receive LTA as a part of your salary and choose the new regime, the tax authorities will add that amount to your taxable income.
What Should Taxpayers Do?
Financial advisors recommend that individuals compare both regimes before filing their income tax returns. If your salary package includes components like LTA, HRA, or you’re investing in tax-saving instruments, the old regime might offer better benefits, even if the tax slabs are higher.
On the other hand, if you do not claim many deductions and want a simplified filing process, the new regime could work better for you. The government has allowed taxpayers to switch regimes every year (for those without business income), so it’s important to review your salary structure and expenses annually.
The Income Tax Department has also provided a tax calculator on their official portal to help people estimate which option is better. You can check it here: https://www.incometax.gov.in
Summary:
- LTA is now fully taxable under the new income tax regime.
- Taxpayers choosing the new regime cannot claim LTA, HRA, or standard deductions.
- Salaried individuals should review their income and deductions before opting for the new regime.
- Visit the official Income Tax website for more clarity and tools.
This update aims to simplify taxation, but requires careful personal evaluation to avoid inadvertently paying more tax.
