My client is an employer facing a s.201 order for not deducting on LTC where the employees' itineraries included a foreign leg but the reimbursement was limited to the domestic shortest-route fare. Is the bona fide estimate defence available?
No. The Supreme Court held that the moment an employee undertakes travel with a foreign leg it is not travel within India and the payment is outside s.10(5), so the employer was bound to deduct under s.192(1) and was rightly held an assessee in default. It rejected the argument that the reimbursement having been confined to the shortest domestic route saved the exemption, and it rejected the bona fide mistake defence because the employer had the complete travel details before it when settling the bills.
Decided by the Supreme Court (Uday Umesh Lalit CJI, S. Ravindra Bhat J and Sudhanshu Dhulia J (judgment by Sudhanshu Dhulia J)) on 2022-11-04, reported as Civil Appeal No. 8181 of 2022 (arising out of SLP (C) No. 9876 of 2020) (SC). It bears on section 10(5), section Rule 2B, section 192, section 192(1), section 201, section 201(1), section 133A, section 221 of the Income Tax Act 1961, in Salary & Perquisites, TDS Defaults and Capital Gains Exemptions matters.
This is the controlling authority on employer TDS where an exemption claim on the employee's side turns out to be bad, and it materially narrows the older bona fide estimate line. The employer's protection under that line depends on the estimate being honest on the material available; where the employer holds the very documents that show the exemption does not apply — here, the LTC bills disclosing itineraries such as Delhi–Madurai–Colombo–Kuala Lumpur–Singapore–Colombo–Delhi — there is no honest estimate to defend. Two further things to carry from it. First, on the substance, s.10(5) read with Rule 2B does not merely cap the exempt amount at the domestic shortest-route fare; a foreign leg takes the journey outside the clause altogether. Second, the Court expressly separated the obligation to deduct from the payment of tax, so the employer's default stands independently of what the employees did in their own assessments — though the first proviso to s.201(1), reproduced in the judgment, is the route to relief where the payees have returned the income and paid the tax and an accountant's certificate is furnished.
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For AY 2013-14 the Revenue conducted a spot verification under s.133A and found that employees of State Bank of India had claimed Leave Travel Concession for journeys whose itineraries included foreign destinations. Employees had claimed travel expenses between two points in India but had travelled to a foreign country in between, taking a circuitous route rather than the shortest one; examples in the record include travel to Port Blair via Malaysia or Singapore, Port Blair via Bangkok and Malaysia, Rameswaram via Mauritius, Madurai via Dubai and Thailand, and Port Blair via Europe, and one employee travelled Delhi–Madurai–Colombo–Kuala Lumpur–Singapore–Colombo–Delhi with the claim fully reimbursed and no tax deducted under s.192(1). The Assessing Officer held the bank an assessee in default for not deducting tax at source; the CIT(A) and the Income Tax Appellate Tribunal (order dated 9 July 2019) upheld that, and a Division Bench of the Delhi High Court dismissed the bank's appeal in ITA No. 05/2020 by judgment dated 13 January 2020 holding no substantial question of law arose. The bank appealed to the Supreme Court, arguing through senior counsel that the employees did travel between two designated places in India and that the payments actually made were confined to the shortest route between those two Indian places, so that nothing was paid for foreign travel.
The appeal was dismissed. The view of the Delhi High Court, the Tribunal and the Revenue could not be faulted and the assessee-employer ought to have deducted tax at source (paras 5 and 17). LTC is for travel within India and the moment employees undertake travel with a foreign leg it is not travel within India and is not covered by s.10(5) (paras 13 and 14). The bona fide mistake defence was rejected because all relevant documents and material were before the employer at the time and it ought to have applied its mind and deducted tax as its statutory duty under s.192(1) (para 16).
The Court set out s.192(1), s.201 with its provisos, s.10(5) with Explanation 1 and Rule 2B (para 6). It reasoned that the provisions prescribe the fare between two points within India by the shortest route between those places, both of which have to be in India, and that on a conjoint reading the bank's argument that the travel was within India and no payment was made for the foreign leg could not be sustained (para 10). It observed that it was difficult to accept that a person would avail a foreign tour without paying any price for it (para 11), and that the appellant, holding the complete LTC bills, could not have failed to notice the itineraries — 'this was the elephant in the room' (para 12). It rejected the contention that s.10(5) contains no specific bar on foreign travel (para 13) and the contention that the payments were confined to the shortest route (para 14). It added a purposive reason: foreign travel frustrates the basic objective of the scheme, which was to familiarise a Government employee with Indian culture, and the Sixth Pay Commission had expressly declined to allow foreign travel under LTC (para 15). Finally it approved the CIT(A)'s holding that the obligation to deduct tax is distinct from the payment of tax and held that the employer was fully in a position to calculate the estimated income of its employees, so no bona fide mistake arose (para 16).
LTC is for travel within India, from one place in India to another place in India. There should be no ambiguity on this.
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Handle my notice → Ask a CA on WhatsAppNo. The Supreme Court held that the moment an employee undertakes travel with a foreign leg it is not travel within India and the payment is outside s.10(5), so the employer was bound to deduct under s.192(1) and was rightly held an assessee in default. It rejected the argument that the reimbursement having been confined to the shortest domestic route saved the exemption, and it rejected the bona fide mistake defence because the employer had the complete travel details before it when settling the bills. This was decided by the Supreme Court (Uday Umesh Lalit CJI, S. Ravindra Bhat J and Sudhanshu Dhulia J (judgment by Sudhanshu Dhulia J)) and bears on section 10(5), section Rule 2B, section 192, section 192(1), section 201, section 201(1), section 133A, section 221 of the Income Tax Act 1961. It is reported as Civil Appeal No. 8181 of 2022 (arising out of SLP (C) No. 9876 of 2020) (SC). This is the controlling authority on employer TDS where an exemption claim on the employee's side turns out to be bad, and it materially narrows the older bona fide estimate line. The employer's protection under that line depends on the estimate being honest on the material available; where the employer holds the very documents that show the exemption does not apply — here, the LTC bills disclosing itineraries such as Delhi–Madurai–Colombo–Kuala Lumpur–Singapore–Colombo–Delhi — there is no honest estimate to defend. Two further things to carry from it. First, on the substance, s.10(5) read with Rule 2B does not merely cap the exempt amount at the domestic shortest-route fare; a foreign leg takes the journey outside the clause altogether. Second, the Court expressly separated the obligation to deduct from the payment of tax, so the employer's default stands independently of what the employees did in their own assessments — though the first proviso to s.201(1), reproduced in the judgment, is the route to relief where the payees have returned the income and paid the tax and an accountant's certificate is furnished. If it applies to you, the first step is this: Before treating LTC as exempt in the s.192 computation, obtain and examine the full itinerary, not just the fare claim; a single foreign sector defeats the exemption for the whole journey.
For AY 2013-14 the Revenue conducted a spot verification under s.133A and found that employees of State Bank of India had claimed Leave Travel Concession for journeys whose itineraries included foreign destinations. Employees had claimed travel expenses between two points in India but had travelled to a foreign country in between, taking a circuitous route rather than the shortest one; examples in the record include travel to Port Blair via Malaysia or Singapore, Port Blair via Bangkok and Malaysia, Rameswaram via Mauritius, Madurai via Dubai and Thailand, and Port Blair via Europe, and one employee travelled Delhi–Madurai–Colombo–Kuala Lumpur–Singapore–Colombo–Delhi with the claim fully reimbursed and no tax deducted under s.192(1). The Assessing Officer held the bank an assessee in default for not deducting tax at source; the CIT(A) and the Income Tax Appellate Tribunal (order dated 9 July 2019) upheld that, and a Division Bench of the Delhi High Court dismissed the bank's appeal in ITA No. 05/2020 by judgment dated 13 January 2020 holding no substantial question of law arose. The bank appealed to the Supreme Court, arguing through senior counsel that the employees did travel between two designated places in India and that the payments actually made were confined to the shortest route between those two Indian places, so that nothing was paid for foreign travel. The matter was decided on 2022-11-04 by the Supreme Court (Uday Umesh Lalit CJI, S. Ravindra Bhat J and Sudhanshu Dhulia J (judgment by Sudhanshu Dhulia J)). On those facts the Supreme Court held as follows. The appeal was dismissed. The view of the Delhi High Court, the Tribunal and the Revenue could not be faulted and the assessee-employer ought to have deducted tax at source (paras 5 and 17). LTC is for travel within India and the moment employees undertake travel with a foreign leg it is not travel within India and is not covered by s.10(5) (paras 13 and 14). The bona fide mistake defence was rejected because all relevant documents and material were before the employer at the time and it ought to have applied its mind and deducted tax as its statutory duty under s.192(1) (para 16).
The Court set out s.192(1), s.201 with its provisos, s.10(5) with Explanation 1 and Rule 2B (para 6). It reasoned that the provisions prescribe the fare between two points within India by the shortest route between those places, both of which have to be in India, and that on a conjoint reading the bank's argument that the travel was within India and no payment was made for the foreign leg could not be sustained (para 10). It observed that it was difficult to accept that a person would avail a foreign tour without paying any price for it (para 11), and that the appellant, holding the complete LTC bills, could not have failed to notice the itineraries — 'this was the elephant in the room' (para 12). It rejected the contention that s.10(5) contains no specific bar on foreign travel (para 13) and the contention that the payments were confined to the shortest route (para 14). It added a purposive reason: foreign travel frustrates the basic objective of the scheme, which was to familiarise a Government employee with Indian culture, and the Sixth Pay Commission had expressly declined to allow foreign travel under LTC (para 15). Finally it approved the CIT(A)'s holding that the obligation to deduct tax is distinct from the payment of tax and held that the employer was fully in a position to calculate the estimated income of its employees, so no bona fide mistake arose (para 16). In the words reproduced by the source cited on this page: "LTC is for travel within India, from one place in India to another place in India. There should be no ambiguity on this."
It was decided by the Supreme Court on 2022-11-04 and is reported as Civil Appeal No. 8181 of 2022 (arising out of SLP (C) No. 9876 of 2020) (SC). Binding on every court and authority in India. A Supreme Court decision binds every assessing officer, every Commissioner (Appeals), every bench of the Income Tax Appellate Tribunal and every High Court in India. An officer who declines to follow it is acting contrary to law, and that refusal is itself a ground of appeal. On section 10(5), section Rule 2B, section 192, section 192(1), section 201, section 201(1), section 133A, section 221, the practical question is whether the facts of your own notice match the facts of this case closely enough for the same rule to apply.
It helps the department, and it appears in this library for that reason — you need to know what the Assessing Officer will cite against you. The appeal was dismissed. The view of the Delhi High Court, the Tribunal and the Revenue could not be faulted and the assessee-employer ought to have deducted tax at source (paras 5 and 17). LTC is for travel within India and the moment employees undertake travel with a foreign leg it is not travel within India and is not covered by s.10(5) (paras 13 and 14). The bona fide mistake defence was rejected because all relevant documents and material were before the employer at the time and it ought to have applied its mind and deducted tax as its statutory duty under s.192(1) (para 16). It arises in Salary & Perquisites, TDS Defaults and Capital Gains Exemptions matters, on section 10(5), section Rule 2B, section 192, section 192(1), section 201, section 201(1), section 133A, section 221 of the Income Tax Act 1961, and was decided by Uday Umesh Lalit CJI, S. Ravindra Bhat J and Sudhanshu Dhulia J (judgment by Sudhanshu Dhulia J). Before relying on it, read the source linked on this page and check whether it has since been distinguished, overruled or overtaken by an amendment to the Income Tax Act. In practice the steps that follow from it are these. Do not rely on the employer having reimbursed only the shortest domestic route — that argument was made by senior counsel and rejected. Where the employer has already been held in default, work the first proviso to s.201(1): establish that the employees furnished returns under s.139, took the sum into account in computing income and paid the tax, and furnish the accountant's certificate in the prescribed form. Use the second proviso to s.201(1) on penalty under s.221 — no penalty unless the Assessing Officer is satisfied the person failed without good and sufficient reasons. For employees, treat any foreign component of an LTC journey as fully taxable salary and disclose it; the exemption is not apportionable. Where a s.133A spot verification has surfaced the itineraries, expect the estimate defence to be unavailable and shift the argument to quantum and to s.201(1A) interest.
Still good law. The citedby index for this judgment is unreliable because it sweeps in every State Bank of India tax case; a search on its appeal number returns 134 decisions citing it, the most recent a Rajkot Tribunal order of 30 July 2026. It is applied at Tribunal level across benches: State Bank of India, Bangalore v DCIT (Bangalore, 28 June 2024) sets out what the Court 'held in this order' of 4 November 2022; State Bank of India, Chennai v ACIT (TDS) (Chennai, 27 June 2025) records that the Court 'confirmed the view of the Assessing Officer'; and State Bank of India Rasmeccc Sarc v ITO (TDS)-2, Rajkot (30 July 2026) quotes its holding on leave travel concession. Nothing overruling, doubting or distinguishing it on principle was found in four searches. It remains to be read alongside the older employer-estimate line under sections 192 and 201. No source could be cited for that finding. Checking whether an authority still stands matters as much as knowing what it held: a decision may be overruled on one point and survive on another, or the provision it interprets may have been amended since. Read the source and the editor's note on this page before relying on it in a reply to an Assessing Officer or in an appeal.
The judgment is headed 'ORDER' and authored by Sudhanshu Dhulia J. The signature block carries three signatures — Uday Umesh Lalit CJI, S. Ravindra Bhat J and Sudhanshu Dhulia J — while the indiankanoon metadata for the document lists only Sudhanshu Dhulia and Uday Umesh Lalit; the entry follows the signature block. The document date line reads 'New Delhi November 4, 2022'. The judgment reproduces s.192(1), s.201 with both provisos, s.10(5) with Explanation 1 and Rule 2B; the reproduction of s.201 runs into the second proviso without a closing quotation mark. Para 15 quotes para 4.3.4 of the Sixth Pay Commission Report dated March 2008. The judgment has 17 numbered paragraphs. This library shows the verification state of every entry openly. This entry has not yet been read in full by a chartered accountant. The summary reflects the sources listed on this page. Read the source before you rely on it in a reply to an Assessing Officer or in an appeal before the Commissioner (Appeals) or the Income Tax Appellate Tribunal.
The appeal was dismissed. The view of the Delhi High Court, the Tribunal and the Revenue could not be faulted and the assessee-employer ought to have deducted tax at source (paras 5 and 17). LTC is for travel within India and the moment employees undertake travel with a foreign leg it is not travel within India and is not covered by s.10(5) (paras 13 and 14). The bona fide mistake defence was rejected because all relevant documents and material were before the employer at the time and it ought to have applied its mind and deducted tax as its statutory duty under s.192(1) (para 16).
TaxSphere, “State Bank of India v Assistant Commissioner of Income Tax”, https://taxnotice.vittsphere.com/caselaw/case/state-bank-of-india-v-cit-ltc-tds/ (validity last checked 2026-09-08)
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