Important Keyword: Cash voucher scheme, Income from salary, Income Tax, LTC.
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LTC Cash Voucher Scheme
Nirmala Sitharaman, the Finance Minister, unveiled the LTC cash voucher scheme for central government employees on October 12, 2020. Following this, the Income Tax Department, through a press release on October 29, 2020, extended the scheme’s benefits to non-central government employees, encompassing those in the private sector, public sector units, and state government. The government formally introduced the Leave Travel Concession (LTC) cash voucher scheme in Budget 2021.
What is LTC?
Leave Travel Allowance (LTA) is a component of an employee’s salary provided by employers for domestic travel, allowing tax exemption if the employee and their family undertake the journey. This tax benefit falls under section 10(15) of the Income Tax Act, enabling employees to claim the cost of tickets for two trips within India over a four-year period.
Objective of LTC Cash Voucher Scheme
The LTC Cash Voucher scheme, introduced to stimulate consumer demand and offer tax benefits amidst Covid-related travel constraints, provides employees with alternative expenditure choices to utilize their LTA or LTC benefits. Under this scheme, employees can opt for a cash equivalent of LTC fare and associated leave encashment without actually undertaking travel. This initiative not only offers flexibility to employees but also promises tax savings for eligible individuals.
Who are Eligible?
The LTC cash voucher scheme, initially designated for central government and PSU employees, has been broadened to encompass non-central government personnel, including those working in the private sector, public sector units, and state government. This extension ensures that employees across various sectors can benefit from the scheme’s provisions, fostering equitable access to tax-saving opportunities and enhancing consumer spending.
How Does LTC Cash Voucher Scheme Work?
To be eligible for the LTC cash voucher scheme, several criteria must be met:
- The exemption is applicable for the financial year 2020-21.
- The scheme pertains to the LTC benefit for the block of 2018-2021.
- The LTC exemption for the current block (2018-21) should not have been exhausted, as utilizing this scheme counts as one trip out of the two allowable.
- The cash voucher scheme covers expenses incurred for any family member(s) eligible for LTC benefits.
- The LTC Cash Voucher scheme is applicable in the old tax regime. Employees who have chosen the new income tax or concessional tax regime are not eligible for this benefit.
- The benefits of this special cash voucher scheme will be processed within the current financial year if invoices for purchases of goods/services are submitted on time.
Conditions to claim benefit under the Scheme
To avail the benefits of the LTC cash voucher scheme, individuals must meet the following criteria:
- Spend an amount equal to the value of leave encashment and an amount three times the cash equivalent of deemed fare on the purchase of goods/services subject to GST of 12% or more.
- Make purchases between October 12, 2020, and March 31, 2021.
- Make payments for the goods/services through digital modes such as cheque, UPI, etc.
- Furnish invoices to the employer containing details of the vendor, GST number, and GST amount paid. Invoices in the name of family members can also be submitted.
Meeting all these conditions is necessary to claim the benefits under the LTC cash voucher scheme.
Deemed LTC Fare
The LTC cash voucher scheme offers a way for employees to claim tax benefits without actually traveling. Here’s what you need to know before opting for it:
Deemed LTC Fare:
The deemed LTC fare varies based on the mode of travel entitlement. Employees eligible for business class airfare can claim up to ₹36,000 per person for a round trip, while those entitled to economy class airfare can claim up to ₹20,000 per person. For rail travel of any class, the maximum claim is ₹6,000 per person for a round trip.
Maximum Tax Benefit:
The maximum tax benefit per person for business class air travel is ₹36,000, totaling ₹1.44 lakh for a family of four. To claim the maximum benefit, an individual must spend ₹4.32 lakh (₹36,000 x 4 x 3).
Optional Scheme:
Participation in the LTC cash voucher scheme is voluntary. Employees can choose to avail of this scheme or opt for regular LTC benefits in subsequent years within the LTC block period.
Tax Benefits:
Reimbursement of purchases made under the LTC cash voucher scheme results in tax savings for employees. While TDS applies to leave encashment, the amount related to cash reimbursement of LTC fare is exempt from TDS. However, there may still be uncertainties regarding the income tax applicability, and the IT department has issued clarifications on various queries related to the scheme.
Employees should carefully consider their options and consult with their employers or tax advisors to make an informed decision regarding the LTC cash voucher scheme.
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Official Income Tax Return filing website: https://incometaxindia.gov.in/
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