1. The Government vide office memorandum no. F.No. 12(2)/2020—EH(A) dated 12 October 2020 announced the Cash Voucher LTC (Leave Travel Scheme) scheme for Central Government employees.
1.1 The Central Board of Direct Taxes issued a press release on October 29, 2020, to provide a similar scheme & income-tax exemption to non-central government employees, who were not covered by the 12 October Office Memorandum.
1.2 Non-central government employees include employees of state governments, public sector enterprises, banks, and the private sector.
1.3 Thus the LTC scheme & tax exemption is also applicable to employees working with the Private sector, Public sector undertaking (PSU) and State Government.
2. SPECIAL CASH VOUCHER LTC SCHEME AT A GLANCE: An employee is required to fulfill the following conditions to avail of the benefit under the scheme
(a) The LTC scheme requires employees to spend three times the amount of deemed LTC fare on the purchase of goods or services, having a GST rate of 12 percent or more;
(b) The amount must be spent during the period October 12, 2020-March 31, 2021;
(c ) The payment must be made through a digital mode which includes cheque, UPI, debit/credit card, etc., and required to furnish a copy of invoices to the employer containing GST number of the vendor and GST amount paid.
(d) 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.
(e) 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.
2.2 The details of special cash package scheme has been brought out in articles Special Cash Package Scheme In Lieu of LTC for Government Employees & An Overview of Special Cash Package LTC Schem
3. TAX EXEMPTION FOR LEAVE TRAVEL ALLOWANCES (LTA) The government LTC is quite different from the LTA system being followed in the private sector or some of the corporate sectors . In such organizations, the employers generally provide LTA to employees for travel expenses as part of their compensation structure.
3.1 The company pays to leave travel allowance irrespective of the fact whether the employee can travel or not during the year. The exemption is allowed where an employee takes leave to travel within India and furnishes evidence for the same, subject to fulfillment of conditions prescribed in the Act. In case the proof for travel is not produced, such an amount is then considered as taxable perquisites subject to TDS (tax deduction at source).
3.2 As recently clarified, based on FAQ no.3 dated November 25, it is not mandatory for an employee to opt for leave encashment. The employee can avail this scheme utilizing the applicable LTC fare without opting for leave encashment. Further, even though leave encashment is not opted for, the employee will have to spend 3 times the deemed LTC fare.
3.3 The implications would be no different under the LTC voucher scheme. Instead of incurring expenses on travel, the employee can now furnish proof for purchases made / services availed and avail of the tax exemption.
3.4 The tax exemption will be restricted to the deemed LTC fare of up to a maximum of Rs 36,000 per person for a round trip as for non-central government employees, the cash allowance payment of a maximum of Rs 36,000 per person as deemed LTC concession fare, is permissible
|(a)||Mr. A is an employee of a corporate sector under the LTA scheme|
|(b)||LTA amount based on salary structure is||Rs 1,50,000|
|(c )||Eligible Family Members (as per Income Tax LTC Rule)||4|
|(d)||Maximum benefit (36000*4)
The guidelines of the LTC scheme for non-central government employees provide a maximum benefit of Rs 36,000 per person.
|(e)||Amount need to spend on purchases as per the specified scheme (3 times of deemed fare (maximum benefit)) = 144000*3||
|(d)||Taxable LTA amount (1,50,000 – 144,000) Subject to condition that Mr. A spend Rs 4,32,000 for specified purchases||Rs 6,000|
|(e)||LTA Exemption in case of less amount spent on the purchase Suppose Mr. X purchases only for Rs 2,00,000/- LTA exemption will be proportionately reduced (144000/432000*200000)||Rs 66666|
|(f)||Taxable LTA in case of less amount spent on the purchase (150000-66666)||Rs 83334|
Disclaimer: The interpretation of the provision and strictly the author’s view and for informational purpose only. It does not constitute professional advice or recommendation for claiming LTA exemptions
The author can be approached at [email protected]