Last updated: July 2026 · For FY 2025-26 (AY 2026-27)

Buried inside your CTC are several components that can legally reach your pocket tax-free — Leave Travel Allowance (LTA), food coupons, children education allowance and more. Claim them correctly and you shave thousands off your tax bill; ignore them and you simply overpay. But there's a catch that trips up most people in FY 2025-26: almost all of these tax-free allowances survive only under the old regime. This guide explains every major allowance, its exact exemption limit and the law behind it, decodes the LTA "block year" rules with a worked example, and shows you how to actually capture these benefits.

Read this first: The new tax regime is now the default (Section 115BAC). If you're on it, you cannot claim LTA, food coupons, children education allowance, or most Section 10(14) allowances. Only a handful survive — most notably transport allowance for differently-abled employees. To use the allowances below, you generally need to be on the old regime. Not sure which regime fits you? Compare them with our regime tax calculator.

Key Takeaways

• Most tax-free allowances (LTA, food coupons, CEA, hostel, uniform) are available only under the OLD regime. The default new regime strips them away in exchange for lower slab rates.
• LTA (Section 10(5)) exempts travel fare for 2 journeys in a block of 4 calendar years — the current block is 2022–2025, the next is 2026–2029. Domestic travel only; stay and food are never covered.
• Small but real: children education allowance ₹100/month/child, hostel ₹300/month/child (max 2 children each), and food coupons up to ₹50/meal — all old-regime only.
• Transport allowance for differently-abled employees (₹3,200/month) is one of the few exemptions that survives in both regimes.
• The right move is to first pick the regime that minimises your total tax, then structure allowances to match. Model it on our CTC calculator and in-hand salary calculator.

The Big Picture: Old Regime vs New Regime

Before optimising a single allowance, understand the fork in the road:

• New regime (default): Lower tax rates and a ₹75,000 standard deduction, but you forfeit LTA, HRA, food coupons, children education allowance and most other exemptions. Employer NPS (Section 80CCD(2)) and standard deduction still apply.
• Old regime: Higher rates, but you can claim the full menu of allowances and deductions covered in this guide.

So the allowances below are worth engineering only if the old regime is genuinely cheaper for you once every exemption is added up. If you have a home loan, high rent and travel benefits, the old regime can still win — see our full breakdown in Old vs New Tax Regime and side-by-side numbers on the tax comparison chart.

Tax-Free & Partly-Exempt Allowances at a Glance

Allowance	Exemption limit (FY 2025-26)	Governing section	Available in new regime?
Leave Travel Allowance (LTA)	Actual travel fare, 2 journeys per 4-year block	Section 10(5), Rule 2B	❌ Old regime only
Children Education Allowance	₹100/month per child (max 2 children)	Section 10(14), Rule 2BB	❌ Old regime only
Children Hostel Allowance	₹300/month per child (max 2 children)	Section 10(14), Rule 2BB	❌ Old regime only
Food coupons / meal vouchers	Up to ₹50 per meal	Rule 3(7)(iii)	❌ Old regime only
Uniform allowance	Actual expenditure incurred	Section 10(14), Rule 2BB	❌ Old regime only
Telephone / internet reimbursement	Actual bill (reimbursement basis)	Section 17(2) perquisite rules	❌ Old regime only
Books & periodicals reimbursement	Actual expenditure incurred	Section 10(14) / reimbursement	❌ Old regime only
Transport allowance — differently-abled employees	₹3,200/month (₹38,400/year)	Section 10(14), Rule 2BB	✅ Both regimes
Conveyance for official duty / travel on tour or transfer	Actual expenditure for official work	Section 10(14)	✅ Both regimes

The exemption is always the lower of the amount received and the applicable limit/actual expenditure. Figures reflect FY 2025-26 (AY 2026-27); confirm your own eligibility with your employer or a tax professional.

Leave Travel Allowance (LTA): The Rules That Actually Matter

LTA is the marquee tax-free allowance — and also the most misunderstood. Here's what governs it under Section 10(5) read with Rule 2B:

1. Two journeys per four-year "block year"

You can claim LTA exemption for two journeys within a block of four calendar years. The block is fixed by law for everyone — it is not counted from your date of joining.

• Current block: 2022–2025 (1 January 2022 to 31 December 2025).
• Next block: 2026–2029.

2. Domestic travel only

LTA covers travel within India only. International trips get zero LTA exemption, no matter how the tickets are booked.

3. Only the travel fare is exempt

This is where most claims go wrong. LTA covers the cost of travel (fare) — economy-class airfare, first-class AC rail, or the equivalent bus fare — for you and your family. It does not cover:

• Hotel and accommodation
• Food and dining
• Local sightseeing, taxis or local conveyance

4. Who counts as "family"

Spouse, up to two children, and dependent parents and siblings. The two-child cap doesn't apply to children born before 1 October 1998, or where a second birth results in twins/multiples after the first child.

5. The carry-over rule

If you don't use both journeys in a block, one unclaimed journey can be carried over — but it must be used in the first calendar year of the very next block. So an unclaimed 2022–2025 journey must be taken in 2026.

Worked Example: How Much LTA Is Actually Exempt?

Suppose Priya, on the old regime, receives an LTA of ₹60,000 from her employer this financial year. She takes a domestic family trip and books flights costing ₹42,000 (economy fare for herself, her spouse and two children).

Step	Amount
LTA received from employer	₹60,000
Actual eligible travel fare (economy air)	₹42,000
Exempt amount = lower of the two	₹42,000
Balance added to taxable salary	₹18,000

Priya's exemption is capped at her actual travel fare of ₹42,000, not the full ₹60,000 allowance. The remaining ₹18,000 is taxed at her slab rate. And crucially — had Priya been on the new regime, her entire ₹60,000 would have been fully taxable.

The Smaller Allowances — Don't Leave Them on the Table

Under the old regime, these add up quietly:

• Children Education Allowance — ₹100/month per child, up to 2 children (₹2,400/year max). Governed by Section 10(14), Rule 2BB.
• Children Hostel Allowance — ₹300/month per child, up to 2 children (₹7,200/year max).
• Food coupons / meal vouchers — up to ₹50 per meal. Paid via meal cards (not cash) and commonly structured around two meals per working day.
• Uniform allowance — exempt to the extent of actual expenditure on office-mandated uniforms.
• Telephone/internet and books & periodicals — typically handled as reimbursements against actual bills rather than blanket exemptions.

And the one that survives in both regimes:

• Transport allowance for differently-abled employees — ₹3,200/month (₹38,400/year) for blind, deaf, or orthopedically handicapped employees, under Section 10(14) read with Rule 2BB. No proof of actual expenditure is needed, but a disability certificate is required.

For the closely related HRA exemption — which has its own calculation — see our dedicated guide on HRA calculation & tax benefits, and for the full deduction menu, Section 80C, 80D & other deductions.

Common Mistakes to Avoid

• Claiming allowances while on the new regime. If you didn't opt for the old regime, LTA, food coupons and CEA are all fully taxable — the number-one costly error in FY 2025-26.
• Including hotel, food or sightseeing in an LTA claim. Only travel fare qualifies.
• Claiming LTA for an overseas trip. Domestic travel only.
• Trying to claim LTA every year. Only two journeys per four-year block are allowed.
• Taking cash instead of a meal card and expecting the ₹50/meal exemption — cash reimbursements don't qualify.
• Missing documentation — tickets, boarding passes, bills and the leave record must be retained.

Expert Tips

• Pick the regime first, then structure allowances. There's no point loading your CTC with LTA and food coupons if the new regime is cheaper for you. Run both on the regime tax calculator.
• Time your LTA to the block. With the 2022–2025 block closing, plan whether to use a journey in 2025 or carry one over into 2026.
• Bundle a family trip into one financial year so the full fare qualifies against a single year's LTA.
• Ask HR to structure old-regime-friendly components — meal cards, education allowance, uniform — into your salary before the year starts, not after. See how components fit together in our salary structure guide.
• Differently-abled employees: submit your disability certificate to HR so the ₹3,200/month transport exemption is applied in both regimes.
• Plan the whole picture at tax planning so allowances, deductions and regime choice work together.

Frequently Asked Questions

Is LTA available under the new tax regime?

No. LTA exemption under Section 10(5) is available only under the old regime. If you're on the default new regime, any LTA you receive is fully taxable.

What is the current LTA block year?

The current block of four calendar years is 2022–2025. The next block runs 2026–2029. You can claim exemption for two journeys within each block.

Does LTA cover hotel and food costs?

No. LTA covers only the cost of travel (economy airfare, first-class AC rail or equivalent bus fare). Accommodation, food and local sightseeing are never exempt.

Can I carry forward unused LTA?

Yes — one unclaimed journey can be carried over, but it must be used in the first calendar year of the next block. An unused 2022–2025 journey must be taken in 2026.

What is the children education allowance exemption limit?

Under the old regime, ₹100 per month per child for up to two children (Children Education Allowance), plus ₹300 per month per child for hostel expenditure. Both are governed by Section 10(14), Rule 2BB.

Which allowances stay tax-free in the new regime?

Very few. The main survivors are transport allowance for differently-abled employees (₹3,200/month), conveyance for official duty, and allowances for travel on tour or transfer. The employer's NPS contribution (Section 80CCD(2)) and the ₹75,000 standard deduction also continue.

Are food coupons still tax-free?

Under the old regime, meal vouchers are exempt up to ₹50 per meal when paid via a meal card. Under the new regime, food coupons are taxable.

Summary

Tax-free allowances remain a genuine, legal way to lower your tax bill — but in FY 2025-26 they come with a giant asterisk: most of them work only under the old regime. LTA (Section 10(5)) exempts travel fare for two journeys per four-year block (currently 2022–2025), while smaller allowances like children education, hostel and food coupons add up quietly. The differently-abled transport allowance is one of the few that survives the new regime. The winning strategy is simple: choose the regime that minimises your total tax, then structure your allowances to match.

Want to see exactly how these allowances affect your take-home pay? Plug your numbers into our free CTC calculator and in-hand salary calculator, and compare regimes on the regime tax calculator.