Finance minister, Nirmala Sitharaman, made an announcement on October 12, 2020 of LTC cash voucher scheme for the central government employees. The Income Tax Department, via a press release issued on October 29, 2020, then extended the benefits of the LTC Cash Voucher Scheme to non-central government employees as well, i.e., those employed in the private sector, public sector units, and the state government. The Leave Travel Concession (LTC) cash Voucher scheme was notified by the government in Budget 2021.
Objective of LTC Cash Voucher Scheme
This scheme was announced to boost consumer demand and to provide tax benefit to individuals who are unable to claim the usual LTC tax benefit due to Covid-related travel restrictions. The LTC Cash Voucher scheme aims to provide other expenditure options to the employees to avail the benefits. It would definitely entail tax savings to the individuals who are getting LTA or LTC from their respective employers. The employees have the option to receive a cash equivalent benefit of LTC fare and related leave encashment without traveling under the LTC scheme.
Who are Eligible?
The LTC cash voucher scheme will be available for central government and PSU employees. However, the finance minister extended this scheme to non-central government employees as well, i.e., those employed in the private sector, public sector units, and the state government.
Conditions to claim benefit under the Scheme
To claim the benefit under the LTC cash voucher scheme, an individual is required to fulfil the following conditions:
- The amount both on account of leave encashment and fare shall be admissible if the employee spends:
- an amount equal to the value of leave encashment and
- an amount 3 times of the cash equivalent of deemed fare
- on the purchase of goods/services attracting GST of 12% or more,
- Purchases must be made during the period between October 12, 2020 and March 31, 2021.
- The payment for the goods/services is mandatorily required to be made through a digital mode including cheque, UPI, etc.
- Invoices must be furnished to an employer containing details of the vendor, GST number and GST amount paid. Invoices in the name of family members can also be submitted.
You will be able to claim the benefits under the scheme only if you fulfill all the above mentioned conditions.
Deemed LTC Fare
The deemed LTC fare for this purpose is as follows:
- Employees who are entitled to business class of airfare: ₹36,000 (per person Round Trip)
- Employees who are entitled to economy class of airfare: ₹20,000 (per person Round Trip)
- Further, the employees who are entitled to Rail of any class: ₹6000 (per person Round Trip)
For example: A maximum tax benefit of LTC fare is INR 36,000 is available per person in case of business class air travel. Thus, for a family of four, the maximum tax benefit that can be claimed is INR 1.44 lakh. Further, to claim the maximum tax benefit, an individual taxpayer will be required to spend INR 4.32 lakh (INR 36,000 X 4 X 3).
How Does LTC Cash Voucher Scheme Work?
The cash voucher scheme is in lieu of the LTC benefit. So, before you go on to file the claim you should know that this would only apply to you in the following circumstances:
- The scheme applies to your LTC benefit for the block of 2018 – 2021
- You have not exhausted the LTC exemption for the current block is 2018-21
- The cash voucher scheme is available for the money spend on any family member(s) eligible for LTC benefit
- LTC Cash Voucher scheme is available in the old tax regime. Further, This scheme benefit is not available to an employee who has exercised an option to pay income tax under new income tax / concessional tax regime.
- Further, the benefits of this special cash voucher scheme will be settled within the current financial year provided the invoices of purchases of goods/services are submitted on time.
Should you opt for it?
This scheme is totally optional and the employees can either choose avail the scheme or opt for the regular LTC in the subsequent years in the block. The benefit is only to the extent of reimbursement in cash of the maximum amount of LTC eligible to them. Those employees who were not planning to avail or have not been able to avail of the the LTC owing to current situation due to Covid-19, have an opportunity to claim LTC cash voucher scheme.
Tax Benefits of LTC Cash Voucher Scheme
Besides getting the reimbursement of purchases, the employees also benefit from LTC scheme in terms of tax savings. Although TDS is applicable on leave encashment, but amount which is related to the cash reimbursement of LTC fare in lieu of deemed actual travel shall be allowed as exemption as per existing provisions. Therefore, TDS provision is not applicable on the amount of LTC fare, which is being reimbursed by employer. However, there are still some uncertain or unclear things in terms of the income tax applicability. IT department also issued clarification regarding various queries received relating to this scheme
An employee can avail of the scheme in partial, i.e. of the LTC of part of the eligible family. In such situations, LTC scheme benefits will be applicable to the fare left unutilized during the current block year starting from 2018 to 2021.
The reimbursement is based on the production of an invoice with details of GST. As far as possible, the claim should be made and settled well before 31st March 2021 to avoid any last-minute rush and resultant lapse.
There is no such prescribed format. The employees only need to submit an application to convey the desire to avail the LTC scheme benefits. If they need an advance for the purchase, the same is to be mentioned in the application.