Income TaxArticles

How private sector employees can avail tax benefit in LTC Cash Voucher Scheme

HeyYou.

Are you a private employee?  Want to avail tax benefit in LTC (Leave Travel Concession) Cash Voucher Scheme. This article is going to be helpful to you. 

Let’s Start

As you all know the COVID-19 pandemic and the consequent nationwide lockdown disrupted your travel plans. This means that you are not able to utilize the Leave Travel Allowance (LTA) available in your salary structures.

Considering the difficult economic environment, and in order to encourage individuals to utilize their unclaimed Leave Travel Allowance amounts and to boost consumer demand, the government has issued relaxed guidelines for LTA.

The guidelines have considered the payment of a cash allowance equivalent to the deemed LTC fare to central government employees in lieu of LTA by introducing the LTC Cash Voucher Scheme on October 12, 2020.

The LTC scheme was further extended to non-central government employees on October 29, 2020, followed by multiple sets of frequently asked questions providing a similar income tax exemption, thereby bringing relief to private-sector employees as well.

How private-sector employees can avail of the LTC cash voucher scheme 

An employee is required to fulfill the following conditions to avail of the benefit under the scheme:

  • The LTC scheme requires employees to spend three times the amount of deemed LTC fare on the purchase of goods/services, having a GST rate of 12 percent or more;
  • The amount must be spent during the period October 12, 2020-March 31, 2021;
  • The payment must be made through a digital mode which includes cheque, UPI, debit/credit card, etc. and
  • Employees are required to furnish a copy of invoices to the employer containing the GST number of the vendor and the GST amount paid. The employees also have an option to submit a self-attested copy of the invoices in case they want to retain the original copies for their future reference.
     

If conditions of the LTC scheme are met, the deemed LTC fare paid to the employees will be tax-exempt, certainly removing the condition of mandatory travel.

As clarified by FAQs, the employees also have an option to submit the invoices in the name of family members as well.

Citi Bank CardTax benefit available under LTC scheme

The guidelines of the LTC scheme for private-sector employees provide a maximum benefit of Rs 36,000 per person.

To understand it in a better way, let’s take an example of a family consisting of 4 members then the values of LTC would be as follows:

  • Let P represent the number of members in the family= 4
  • The maximum exemption that can be availed (Q=36000xP) = INR 144000
  • Expenditure incurred by the family (R) = INR 432000
  • Expenditure to be incurred to avail maximum exemption (S=B3) = INR 432000
  • The eligible non-taxable allowance that is receivable by the employee (T=R/SQ) = INR 144000
In case the amount spent is less than 3 times the eligible amount, the exemption will be allowed proportionately. The LTC scheme was rolled out for the benefit of Central Government employees and it was extended later to cover the Private sector employees.

Recently the CBDT has issued a circular dated December 3, 2020, on TDS compliance providing that the employer shall allow income tax exemption only on the fulfillment of conditions specified in the LTC scheme on such spending.

In the recent budget presented by the Finance minister, a legislative amendment to the provisions dealing with LTA/ LTC has been proposed.
It has been clarified that the amount of exemption shall not exceed Rs 36,000 per person or one-third of specified expenditure, whichever is less.
 
Another important clarification that has been provided is that, if an amount of LTA is paid under terms of employment, the exemption under the LTC scheme would be restricted as per the provisions of the LTC scheme would be restricted as per the provisions of LTC scheme.
It is important to note that the budget has clarified that the scheme is applicable only up to 31 March 2021 as against the expectations of an extension.

With less than one and half months to go for the close of the financial year, the organizations should explore the LTC scheme, supported by legislative amendments to provide effective relief to employees.

Employees are hopeful that organizations will look at their current LTA policy and roll out the communication to employees to avail benefits under the newly announced LTC scheme.

Certainly, the LTC scheme is a welcome move, meeting dual objectives, i.e., liberalizing the existing LTA exemption and incentivizing consumption.

 
Employers and employees need to work together so that the employer rolls out the LTC scheme and the employees meet the conditions to avail the benefit under the scheme.

 
 
 

Vikas Sharma

A writer by passion. Reading and traveling in my free time enhances my creativity in work. I enjoy exploring my creative side, and so I keep myself engaged in learning new skills.

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