The Income Tax Draft Rules 2026 could significantly reshape how salaried individuals claim tax benefits on travel expenses. One of the most notable proposals under the new framework is the relaxation of Leave Travel Concession (LTC) rules, which may allow an employees to claim the higher travel costs, including premium air travel, as tax-exempt. If implemented, this change could make employee travel benefits far more valuable than before.
Leave Travel Concession, also referred to as Leave Travel Allowance (LTA) in many salary structures, enables employees to claim tax exemption on travel expenses incurred while travelling within India. Under the current tax framework, however, the exemption is capped and often fails to reflect real travel costs.
What Are the Existing LTC Restrictions Under Current Tax Rules?
At present, LTC tax exemption for air travel is restricted to the cost of economy-class airfare, even if the employee travels in a higher class. This limitation applies regardless of the employee’s eligibility level or entitlement under company policy. As a result, many salaried taxpayers end up paying tax on the difference between actual travel costs and the permitted exemption.
Additionally, when public transport is not available, the exemption is calculated using rail fare benchmarks that may not always align with practical travel routes, especially in remote locations.
Proposed LTC Changes Under Income Tax Draft Rules 2026
The Income Tax Draft Rules 2026 propose replacing older provisions with updated rules that better reflect modern travel realities. One of the most impactful changes is the removal of the economy-class airfare cap for LTC claims.
Under the draft framework, the eligible exemption would depend on the class of travel the employee is entitled to, rather than being uniformly capped at economy class. This opens the door for eligible employees to potentially claim business class travel expenses as part of their tax-exempt LTC benefit.
If notified in their current form, these changes could significantly enhance the tax efficiency of employer-provided travel benefits.
Higher Reimbursement for Travel to Remote Areas
Another important update under the Income Tax Draft Rules 2026 relates to travel where public transport is unavailable. Instead of linking reimbursement to rail fare equivalents, the draft proposes a fixed reimbursement rate of ₹30 per kilometre, calculated using the shortest route.
This standardised approach is designed to simplify claims, reduce disputes, and provide fairer compensation for employees travelling to remote or underserved regions. It also removes ambiguity around transport benchmarks that may not realistically apply in such cases.
When Will the New LTC Rules Apply?
The proposed changes form part of the broader tax law overhaul scheduled to come into force from April 1, subject to final notification. The draft rules are currently under public review, and stakeholders have been invited to submit feedback before the framework is finalised.
It is important to note that these benefits will only apply once the rules are officially notified. Until then, existing LTC provisions remain applicable.
How Salaried Taxpayers Could Benefit
If implemented, the Income Tax Draft Rules 2026 could increase the real value of LTC exemptions for salaried individuals, particularly those entitled to higher travel classes or those frequently travelling to non-metro or remote destinations. While the changes may not drastically reduce tax liability for everyone, they offer greater flexibility, fairness, and alignment with actual travel costs.
The Income Tax Draft Rules 2026 mark a progressive shift in how Leave Travel Concession benefits are taxed, especially for salaried employees who actively use LTC as part of their salary structure. The Income Tax Draft Rules 2026 introduce greater fairness and flexibility in travel reimbursements.
Want to understand how to avoid refund delays in the future? Receive our expert guidance on accurate tax filing and faster refund processing – Click here.
