Under the existing provisions of the Act, clause (5) of section 10 of the Act provides for exemption in respect of the value of travel concession or assistance received by or due to an employee from his employer or former employer for himself and his family, in connection with his proceeding on leave to any place in India. In view of the situation arising out of outbreak of COVID pandemic, it is proposed to provide tax exemption to cash allowance in lieu of LTC.
Hence, it is proposed to insert second proviso in clause 5 of section 10, so as to provide that, for the assessment year beginning on the 1st day of April, 2021, the value in lieu of any travel concession or assistance received by, or due to, an individual shall also be exempt under this clause subject to fulfilment of conditions to be prescribed. It is also proposed to clarify by way of an Explanation that where an individual claims and is allowed exemption under the second proviso in connection with prescribed expenditure, no exemption shall be allowed under this clause in respect of same prescribed expenditure to any other individual.
The conditions for this purpose shall be prescribed in the Income-tax Rules in due course and shall, inter alia, be as under:
(a) The employee exercises an option for the deemed LTC fare in lieu of the applicable LTC in the Block year 2018-21;
(b) “specified expenditure” means expenditure incurred by an individual or a member of his family during the specified period on goods or services which are liable to tax at an aggregate rate of twelve per cent or above under various GST laws and goods are purchased or services procured from GST registered vendors/service providers;
(c) “specified period” means the period commencing from 12th day of October, 2020 and ending on 31st day of March, 2021;
(d) the amount of exemption shall not exceed thirty-six thousand rupees per person or one-third of specified expenditure, whichever is less;
(e) the payment to GST registered vendor/service provider is made by an account payee cheque drawn on a bank or account payee bank draft, or use of electronic clearing system through a bank account or through such other electronic mode as prescribed under Rule 6ABBA and tax invoice is obtained from such vendor/service provider;
(f) If the amount received by, or due to an individual as per the terms of his employment, from his employer in relation to himself and his family, for the LTC is more than what is allowable to such person under the above discussed provisions, the exemption under the proposed amendment would be available only to the extent of exemption admissible under above listed provisions.
This amendment will take effect from 1st April, 2021 and will, apply in relation to the assessment year 2021-2022 only.
Text of the Relevant Clause of the Finance Bill 2021
Clause 5 of the Bill seeks to amend section 10 of the Income-tax Act relating to incomes not included in total income.
The said section provides that in computing the total income of a previous year of any person, certain categories of income shall not be included in the total income.
Clause (5) of the said section provides for exemption in respect of the value of travel concession or assistance received by or due to an employee from his employer or former employer for himself and his family, in connection with his proceeding on leave to any place in India.
It is proposed to insert a second proviso in the said clause so as to provide that for the assessment year beginning on the 1st day of April, 2021, in the case of an individual, the value in lieu of any travel concession or assistance received by, or due to, such individual shall also be exempted, subject to fulfillment of such conditions (including the condition of incurring such amount of such expenditure within such period), as may be provided by rules.
It is further proposed to insert Explanation 2 so as to clarify that where an individual claims such exemption and the same is allowed under the second proviso in connection with the expenditure provided by rules, no exemption shall be allowed under the said clause in respect of the same expenditure to any other individual.
These amendments will take effect from 1st April, 2021.