There are multiple expenses an employee may incur while traveling away from home on a business trip. Most travel expenses for business purposes are deductible for tax exemption. The Income Tax act allows tax exemptions to employees and employers on trip expenses by assessing the impact of these travels on the business. Knowledge of are travel expenses tax deductible can help one save substantially on taxes. Incorporating tax-deductible travel expenses into the business travel policy is helpful for travel managers and the finance department to ensure tax deductions.
Travel policies are helpful in making employees understand the significance of tax-deductible travel expenses. Travel managers can set travel policies to restrict expenditure for non-essential expenses that may not be tax deductible. Keep reading to learn about essential and non-essential expenses.
Business-related travel expenses
Employees traveling far away from the primary business location must incur transporting and staying expenses. These expenses are tax-deductible unless the travel expenses are unjustifiable from the business perspective or do not serve any legitimate purpose.
Travel managers should design travel policies to include rules that help the organization save taxes. The following are a few guidelines to ensure tax exemptions on travel expenses.
- Consider these expenses for availing tax deductions for business travel:
- Transport expenses to travel back and forth by air, rail, or road
- Local transport, including cab or public transport service
- Accommodation expenses paid for staying in hotel, lodge, resort, guest-house, or service apartment
- Communication expenses like computer rentals, postal charges, telephone, and fax, during business trips
Attending the trade fair is an essential business trip if an organization benefits from the same. Conferences and seminars help improve knowledge of employees by attending lectures by subject experts. These expenses are also tax-deductible travel expenses.
Significance of documentation
Ensure that all relevant documents like receipts and tickets are readily available, as these are crucial for claiming tax deductions. Maintaining travel records of business travel by employees will facilitate the filing of tax returns under the head of tax-deductible travel expenses.
Expenses while traveling abroad for business purposes can also be used to save taxes. However, employees must not exploit this provision to enjoy a holiday in Europe under the excuse of a business trip. There must be a proper differentiation between essential and non-essential expenses.
Employees will have to maintain all documents and receipts that justify their business objectives during the trip. Automated corporate expense management platforms allow scanning and uploading receipts and travel documents through the app. It helps employees reduce the stress of remembering the expense details. The software platform is also helpful for real-time expense report generation.
Leave Travel Allowance
Non-essential travel can also help an employee save on taxes if the employee is eligible to claim Leave Travel Allowance according to the company’s travel policy. Leave Travel Allowance differs from transport allowance that supports an employee’s commuting expenses. The entire amount of travel expenditure is eligible for deduction from the taxable income subject to the employer’s approval.
The employee can claim a maximum amount of Rs 50,000/- as tax-deductible travel expenses if the employer offers the amount (Rs 50,000/-) towards Leave Travel Allowance in the salary structure. One must check the availability of the LTA facility, as not all employees are eligible for the perk. LTA offers dual benefits, as the entire vacation period is a paid leave for the employee. It helps the employee save taxes on the LTA amount as it falls under the category of tax-deductible travel expenses.
Many companies provide the facility of Leave Travel Allowance by mentioning it in the salary structure as Cost to Company (CTC). LTA is a part of the compensation package of most employees. It enables an employee to claim tax exemption on travel expenses while going on a vacation with a spouse, dependent children, and parents subject to certain conditions.
Conditions to avail of LTA tax exemption
Eligible employees willing to avail of benefits of LTA under tax-deductible travel expenses should note these rules.
- Employees eligible for Leave Travel Allowance can claim it twice in a four-year block.
The employee can claim LTA three times in the next four years’ block if unable to claim in the previous block (2018-21)
- The employee must be on an official leave while traveling to claim a tax exemption under Leave Travel Allowance.
- The LTA tax exemption is not available for international travel
- The tax benefit is only for the employee and their family, comprising spouse, children, and parents
- The tax exemption is only available for the cost of travel and not other expenses like shopping, meals, and sight-seeing
- The maximum limit of children is two for tax exemption
- The claim for tax-deductible travel expenses under LTA must accompany tickets and other relevant documents.
Travel managers can update the LTA claiming year to help employees benefit from the tax exemption on tax-deductible travel expenses of Leave Travel Allowance. Using the automated travel management software facilitates push notifications to inform all eligible employees.
Suggested Read: What Is The Travel Expense Approval System
Tax benefits help organizations and employees reduce the tax burden and save money. Travel managers should update information about are travel expenses tax deductible or not to improve compliance. The travel policy should also include rules of Leave Travel Allowance.
Using a SaaS-based platform like Paxes empowers travel managers to develop custom travel programs for the organization. It can also help employees book travel and accommodation through the app. To know more about the tax deductible travel expense, one must contact the travel managers of the organization.
Are Travel Expenses Tax Deductible FAQs
Can you save tax on travel expenses?
Yes, there are several ways to save on tax by submitting proper proof for the travel expenses.
What are business-related travel expenses?
Business-related travel expenses are the cost that the employee spends for a business. Some business-related travel expenses are transportation, accommodation, and communication expenses.
What is a leave travel allowance?
A leave travel allowance comes under non-business-related travel expenses, where the employee is offered an allowance for traveling while on leave. The allowance may include family. This allowance may occur as a cost-to-company and depends on different corporations.
What are the limitations to claiming a leave travel allowance?
Every company sets some limitations for employees on leave travel allowances as the company incurs the cost. Such limitations can be based on expenditure, geography, the number of travelers, or activity.