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Currently, tax exemption on LTC is limited to the cost of economy-class airfare for air travel, regardless of the class actually chosen by the employee.
The income tax department has proposed relaxing Leave Travel Concession (LTC) rules to remove the economy-class cap and revise reimbursement limits for remote-area travel.
Income Tax Draft Rules 2026: Employees may soon be able to claim higher tax-exempt travel benefits, as the income tax department has proposed relaxing Leave Travel Concession (LTC) rules to remove the economy-class cap and revise reimbursement limits for remote-area travel.
Currently, tax exemption on LTC is limited to the cost of economy-class airfare for air travel, regardless of the class actually chosen by the employee.
Leave Travel Concession (LTC), also called Leave Travel Allowance (LTA) in the private sector, is a tax benefit that allows employees to claim exemption on travel expenses incurred for trips within India, subject to certain conditions under income tax rules.
LTC Rules Under Draft Income Tax Rules, 2026
The change has been suggested under Rule 278 of the Draft Income Tax Rules, 2026, which seeks to replace the existing provision contained in Rule 2B of the Income Tax Rules, 1962.
According to Rule 278 of the Draft Income Tax Rules, 2026, the limitation that air travel exemption shall be restricted to economy-class fare has been removed. Instead, the eligible LTC consideration will apply to the class of travel to which the employee is entitled, including recognised public transport where applicable.
This means that employees eligible for higher travel classes, such as business class, may also be able to claim tax benefits if the draft rules are notified in their current form.
Reimbursement Where Public Transport Is Not Available
According to the draft rules, in cases where public transport does not exist, a fixed reimbursement limit of Rs 30 per kilometre by the shortest route is proposed.
Currently, in such cases, the maximum eligible exemption is linked to the fare of an air-conditioned first-class rail ticket for the equivalent distance.
The proposed rules suggest replacing this benchmark with a fixed reimbursement ceiling of Rs 30 per kilometre for the shortest route. This is intended to standardise claims and address practical challenges faced by employees travelling to remote or underserved locations where conventional public transport is unavailable.
The new Income Tax Act, 2025, is set to be implemented from April 1. The Income Tax Draft Rules 2026, which are currently under public review till February 22, are part of this new law.
The draft rules will only come into effect after final notification by the government. Stakeholders may submit feedback before the rules are finalised. If implemented, the move could provide greater flexibility to salaried taxpayers claiming LTC exemptions and may modestly increase the tax-efficient value of employer-provided travel benefits.
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February 21, 2026, 09:41 IST
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