Central Government has come up with a new scheme providing for some relief to employees in the country. As we all know, due to COVID-19 pandemic, people are not in a position to travel, and the employees earning Leave Travel Allowance (LTA) are unable to claim the respective exemption. So, keeping a view to let such persons claim LTA exemption and at the same time give a boost to the GST collection, the government announced a scheme, under which LTA exemption can be claimed if there is expenditure done by employees on the purchase of goods and services attracting GST.

Conditions to be fulfilled for claiming LTA exemption under the scheme

  • 3 times the amount of LTA earned to be spent
  • Goods and Services to be purchased from registered GST dealer
  • Payments to be done only through digital modes
  • All Invoices of the purchase has to submitted to the employer

Restrictions under the LTA scheme

Restrictions under the LTA scheme

For claiming exemption in current year, expenditure needs to be done before 31/03/2021 as the current pre-defined 4 year block is 2018-2021. In case, the amount remains unclaimed it can be utilised during 1st journey of next block.

To understand better, let us take an example of Mr. A, a non-Central Government employee.

LTA Earned ₹ 1,00,000 Total expenditure on GST Purchase ₹ 1,80,000
No. of Family Members (Self + Spouse) 2 Total Eligible Exemption ₹ 72,000

(36,000 x 2)

Total Amount to be spent

(36,000 x 2 persons x 3 times)

₹ 2,16,000 Total Allowable Exemption ₹ 60,000

(72,000 x 1,80,000 ÷ 2,16,000)

Hence, on payment at least ₹ 21,600 (1,80,000 x 12%) as GST, Mr.A gets ₹ 60,000 as LTA exemption.
Assuming Mr.A comes under 30% tax-bracket, his tax savings would be ₹ 18,000 (60,000 x 30%).

This clearly shows that it would be beneficial to purchase such eligible goods and services only if needed. Purchasing goods or availing services only for the sake of claiming the exemption would not be recommended.

As a result, it would not be incorrect to conclude that if one is anyway going to purchase eligible goods or avail eligible services one must do it before 31-03-2021, to avail tax benefits for the current Financial Year.

(This article represents the views of the authors only and does not intent to give any kind of legal opinion on any matter)

Authors:

CA Hardik Patel | Partner | Email: [email protected]

Rishabh Jain | Associate Consultant | Email: [email protected]

Tags:

Author Bio

More Under Income Tax

5 Comments

  1. Chintamani Sudhakar Wagh says:

    Can Telephone Bills , Mobile Bills paid during the year can be submitted for this?
    Whether Gold ornament purchase will be eligible for this GSt @3%

  2. Rajeswari says:

    To claim LTA can I invest 3 times my eligible LTA in LIC premium ?

    As single premium is attracting only 4.5% GST. I am comfused. Please guide

  3. Asha Kanta Sharma says:

    Hi CA Hardik Patel,

    Thanks for the article.

    Can you please tell me what are the eligible purchases of Goods under GST for LTA Claiming ?

    Please

Leave a Comment

Your email address will not be published. Required fields are marked *

Search Posts by Date

April 2021
M T W T F S S
 1234
567891011
12131415161718
19202122232425
2627282930