Rule 278 of Income explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Rule 278 of the Income-tax Rules, 2026 prescribes the conditions for the leave travel concession exemption under Schedule III to the Income-tax Act, 2025. Two journeys are exempt in a block of four calendar years, the blocks now commencing from calendar year 2022, so the current block is 2026 to 2029. Where no recognised public transport exists the deemed rate is Rs 30 per kilometre.
What is exempt
Rule 278(1) covers the value of travel concession or assistance received by or due to an individual from the employer or former employer, for himself and his family, in connection with proceeding:
- (a) on leave to any place in India; or
- (b) to any place in India after retirement from service or after termination of service.
The exempt amount is the amount actually incurred on the performance of such travel, subject to the mode-of-travel ceilings below. Note what is not covered: the rule reimburses travel. Hotels, meals, local sightseeing and conveyance at the destination are outside it entirely.
The mode-of-travel ceilings
| Clause | Situation | Ceiling |
|---|---|---|
| (i) | Journey performed by air | Not exceeding the fare admissible for the class of travel to which the employee is entitled, by the shortest route to the destination |
| (ii) | Origin and destination connected by rail, journey performed by a mode other than air | Not exceeding the air-conditioned first-class rail fare by the shortest route |
| (iii)(A) | Places not connected by rail, and a recognised public transport system exists | Not exceeding the 1st class or deluxe class fare on such transport by the shortest route |
| (iii)(B) | Places not connected by rail, no recognised public transport, and no rate prescribed by the Directorate of Transport of that or a neighbouring State | Rs 30 per kilometre for the distance by the shortest route |
Clause (i) does not say "economy class". It says the fare admissible for the class of travel to which the employee is entitled. Where the employer's travel policy entitles a grade of employee to a higher class, that is the ceiling — subject always to the overriding limit that only the amount actually incurred is exempt, and to the shortest-route requirement.
The rate in clause (iii)(B) rises from the Rs 20 per kilometre that stood in rule 2B of the 1962 Rules. Note the order of precedence within the clause: a rate specifically prescribed by a State Directorate of Transport governs, and the Rs 30 rate applies only where no such rate exists.
Two journeys in a block of four calendar years
Rule 278(2) fixes the entitlement at two journeys performed in a block of four calendar years commencing from the calendar year 2022. That produces:
| Block | Calendar years | Status as at September 2026 |
|---|---|---|
| First block under rule 278 | 2022, 2023, 2024, 2025 | Closed |
| Second block under rule 278 | 2026, 2027, 2028, 2029 | Current |
This is the trap that catches employers every time. The block runs on calendar years while the exemption is claimed in a tax year. A journey in February 2026 falls in the 2026-2029 block but is claimed in the salary computation for tax year 2025-26. Track the two independently.
The carry-over in sub-rules (3) and (4)
Sub-rule (3): where the concession is not availed during a block, the value of the concession first availed during the first calendar year of the immediately succeeding block is eligible for exemption.
Sub-rule (4): that carried-over journey shall not be taken into account in determining eligibility in relation to the number of journeys under sub-rule (2).
The practical effect for the block that has just closed: an employee who availed nothing in 2022 to 2025 can take a carried-over journey in calendar year 2026, and still has the full two journeys of the 2026-2029 block available.
Sub-rule (3) says first calendar year of the succeeding block — not "any year". For the block that ended on 31 December 2025, the carry-over must be availed during calendar year 2026. It lapses on 31 December 2026. Employees with unused 2022-2025 entitlement should be told this while there is still time to travel.
Note also the wording. Sub-rule (3) operates where the concession was not availed during the block, and allows the concession "if any, first availed" in the succeeding block's first year. On its face it does not extend to an employee who availed one of the two journeys.
The two-children restriction
Sub-rule (5): the exemption is not available to more than two surviving children of the individual.
Sub-rule (6): sub-rule (5) does not apply in respect of:
- children born before 1 October 1998; and
- multiple births after one child — so a single child followed by twins does not breach the limit.
Practical guidance
- Reset the block calendar to 2022-2025 / 2026-2029. An employer still running blocks on the old 1986-based cycle is tracking the wrong window.
- Flag the 2026 carry-over now. It is the last year in which an unused 2022-2025 entitlement can be used.
- Collect travel evidence, not trip evidence. Tickets and boarding passes support the exempt amount; hotel bills do not form part of it.
- Apply the shortest-route test in every limb — it qualifies clauses (i), (ii), (iii)(A) and (iii)(B) alike.
- Check for a State Directorate of Transport rate before defaulting to Rs 30 per kilometre; the prescribed rate, where it exists, governs.
- Entitlement under the chosen regime comes from Schedule III read with section 202, not from rule 278. Rule 278 sets the conditions and the quantum only.
Common mistakes
- Using Rs 20 per kilometre under clause (iii)(B).
- Running the block on tax years.
- Claiming the carry-over in the second or third year of the succeeding block.
- Including hotel, food or local travel in the exempt amount.
- Exempting foreign travel — both limbs of sub-rule (1) require a place in India.
- Applying the two-children cap to twins born after one child.