Leave Travel Concession:
Salaried employees can't avoid TDS if the itinerary
includes a foreign trip
LTC can be claimed only for travel within India as the very purpose of this
provision is to familiarise employees with Indian culture.
Employees cannot avoid Tax Deduction at Source (TDS) in the name of Leave Travel
Concession (LTC) if their travel itinerary involves a foreign leg. This rule
will apply even if the employee is claiming LTC for the shortest route of travel
within India, according to a recent Supreme Court Judgement.
In the SBI vs Assistant Commissioner of Income Tax judgement dated 4 November
2022, the apex court held that LTC can be claimed only for travel within India
as the very purpose of this provision is to familiarise employees with Indian
culture. Therefore, LTC benefits would not be available if the travel itinerary
includes a foreign trip.
The apex court upheld the Delhi High Court's judgement which agreed with an
order passed by the Income Tax Appellate Tribunal (ITAT) dated July 9, 2019. The
ITAT had held that the appellant (SBI) as an assessee was in default for the
Assessment Year (AY) 2013-14, for not deducting the TDS of its employees.
The SC observed that LTC is a payment made to an employee which is exempted as
'income' and hence under normal circumstances, there should be no question of
TDS on this payment. It further said that LTC has to be availed by an employee
within certain limitations, prescribed by law. These include:
"Firstly, the travel must be done from one designated place in India to another
designated place within India. In other words, LTC is not for foreign travel."
"Secondly, LTC is given for the shortest route between these two places."
What was the case
In the case before SC, SBI employees had done their travel within India as well
as abroad. The Revenue asserted that "this was not a travel from a designated
place within India to another designated place in India and thus it was in
violation of the statutory provisions and hence the payment made to its
employees by the Bank could not be exempted, and the Bank ought to have deducted
Tax at Source, while making this payment."
The SC judgement cited the example of an SBI employee who had availed LTC
benefit after taking a circuitous route of Delhi- Madurai- ColumboKuala Lampur-
Singapore- Columbo- Delhi and his claim was fully reimbursed by SBI without any
tax deduction under Section 192 (1).
What SBI said:
SBI argued that payment was made only for the shortest route of travel between
two designated places within India. Even a foreign leg was in the itinerary of
the employees, but no payment was made for the same.
However, SBI's argument was rejected by the tax department, ITAT and even the
High Court. SC also agreed to the previous decisions.
"After examining the matter our considered opinion is that the view taken by the
Delhi High Court and the Tribunal and even by the revenue in its initiation of
proceedings cannot be faulted. The appellant whom we shall refer to as the
'assessee employer' ought to have deducted tax at source," the apex court said.
As per the facts quoted in SC judgement, many employees of SBI had undertaken
travel to Port Blair via Malaysia, Singapore or Port Blair via Bangkok, Malaysia
or Rameswaram via Mauritius or Madurai via Dubai, Thailand and Port Blair via
When LTC benefit is available
As per Section 10 (5) of the Income Tax Act, LTC is allowed to travel to any
place in India. The employee can also take his family along for the travel. The
family includes the spouse, children, dependent parents, brothers and sisters.
"It is very difficult to appreciate as to how the appellant who is the assessee-employer
could have failed to take into account this aspect. This was the elephant in the
room," the SC observed.
The apex court also rejected SBI's argument that there is no specific bar under
Section 10(5) for foreign travel and therefore a foreign journey can be availed
as long as the starting and destination points remain within India. As per the
judgement, these claims are without merits.
"LTC is for travel within India, from one place in India to another place in
India. There should be no ambiguity on this," SC said.
The SC also rejected the argument that payment was made only for the shortest
route within India.
"…in view of the provisions of the Act, the moment employees undertake travel
with a foreign leg, it is not a travel within India and hence not covered under
the provisions of Section 10(5) of the Act," SC said.
Foreign travel defies the basic purpose of LTC
SC said, "A foreign travel also frustrates the basic purpose of LTC. The basic
objective of the LTC scheme was to familiarise a civil servant or a Government
employee to gain some perspective of Indian culture by travelling in this vast
"It is for this reason that the 6th Pay Commission rejected the demand of paying
cash compensation in lieu of LTC and also rejected the demand of foreign
travel," it added.
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