Come January it is time to claim your annual reimbursements such as medical allowance and leave travel allowance. These reimbursements are as good as tax savings. The difference being that you submit the required bills and treat them as tax-free income. Under Section 10 (5) of the Income-Tax Act, an employee can undertake a trip within the country by claiming earned leave against it. The employee can claim an exemption for the amount. The underlying assumption here is that the employee's salary has the LTA component as a pert of his/her salary package. This monetary component covers the travel related expenses such as air/train/ bus tickets or a rented vehicle. However, you cannot claim any expenses incurred on lodging and other allied expenses under LTA.

Apart from the employee, LTA covers such expenses of spouse, children as well as dependent parents and siblings. However, this exemption is limited to two children born on or after October 1, 1998. The restriction is not applicable to children born before this date.

This apart, if you are travelling by road or rail, the cost of first class air-conditioned ticket to the destination by the shortest route would be considered for exemption. In case you are travelling to several places, the destination farthest from your residence will be taken into account for calculating the exemption amount.

You have to submit the LTA form along with the copies of original tickets and travel bills to the company to file a claim. If you miss out on filing a claim at your company, you can claim for this exemption at the time of filing your income tax return and avail of a tax refund later. But that would make it a cumbersome and long drawn procedure. However, the New Direct tax Code (DTC), if implemented, will take away all deductions like HRA, LTA and medical allowance, currently allowed under Section 10 of the I-T Act.