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Last year, the onset of the COVID-19 pandemic changed the course of the citizens and the economy. Moreover, with the restriction in outdoor activity, industries such as the travel and tourism sector, the hospitality sector, and others took a hit, leading to a massive economic slowdown. To revive the same and kick start consumption of goods and services, the Indian government has come up with the LTC (Leave and Travel Concession) Cash Voucher Scheme. This scheme is mutually beneficial for the government and central, state, and private sector employees. Here is how:

What is the LTC Cash Voucher scheme?

The LTC Cash Voucher Scheme is a replacement for the original leave and travel concession to employees in a year. It comprises of two parts – leave encashment and travel allowance. Leave encashment is when an employee receives an amount of money in exchange for the number of leaves, he/she did not take in a year. Travel allowance is given by the government (in the case of central or state employees) and by a company (in the case of private-sector employees) for an employee’s and their family members travel expenses within the country. These amounts up to the permissible limits are tax-free. Employees can claim refunds while filing their income tax claims.

However, as employees could not travel much due to the COVID-19 restrictions, most were unable to claim tax exemption on the same. To provide them with the benefits of these tax exemptions and boost nationwide expenditure, the government has introduced the LTC scheme. The scheme enables employees to claim tax exemption on leave encashment and travel allowance by fulfilling other conditions.

What conditions do employees have to fulfill to avail the LTC Cash Voucher scheme?

To get the income tax benefits on the LTC, employees:

● Must purchase goods and services (items like household appliances, two-wheelers, four-wheelers, terand prepaid services like DTH recharge, broadband payments, mobile phone bills, etc.) through GST registered vendors.

● The purchase can only be made through digital modes of payment only (cash payments are ineligible for deduction)

● Must buy goods and services having a goods and services tax rate of a minimum of 12%.

● Can purchase goods and services up to 31st March 2021 only (as the LTC scheme benefit is only available for the year block 2018-2021)

● Can use only one of the LTC cash benefits in a single-year block.

● Can also buy health insurance and life insurance plans (such as a simple term plan) and get reimbursement of the premiums paid up to the permissible limits.

There are also additional rules that employees have to follow:

1. The amount of money spent by an employee has to be three times the value of the maximum LTC fare. The current LTC fares vary for different categories of travel eligibility of employees.

Find out how LTC fares vary for different categories of travel eligibility of employees.
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Find out how LTC fares vary for different categories of travel eligibility of employees.

2. The employee has to spend an amount of 100% equal to the leave encashment value to avail of the benefit.

3. An employee has to provide proof of receipts (including the invoice and details of the GST paid) towards goods and services bought to avail of the benefits under the scheme.

4. He/she will get 100% of the leave encashment amount and 50% of the travel fare amount in their bank account, and the rest will be paid on showing proof of purchases.

5. An employee has the option of only availing of the travel fare benefit. The leave encashment benefit is optional.

Is the LTC Cash Voucher scheme applicable for health, life and term insurance plans?

The LTC Cash Voucher scheme is applicable for health insurance, life insurance and term insurance plans. However, it is only applicable to those policies availed between 12th October 2020 and 31st March 2021. Under the scheme, the premiums paid for buying health insurance, life insurance or term insurance policy will be reimbursed to policyholders according to the permissible limits and relevant sections of the Income Tax Act, 1961.

So, if you buy a life insurance plan such as a term plan, you can get a refund on premiums paid up to 1,50,000 under Section 80C of the Act.

Similarly, if you buy a health insurance plan, you can get a refund on premiums paid up to 75,000 as per Section 80D of the Act.

So, if you haven’t bought health or life insurance yet, the LTC scheme incentive can be a great incentive for you to get one. Moreover, health insurance and life insurance coverage are essential to safeguard your loved ones when calamity strikes or when you are not around to extend your support. You could start with buying a term insurance policy, as it the simplest, purest and most affordable form of life insurance. You can buy term insurance for the array of term insurance benefits apart from the tax incentives. However, it is important to compare term insurance plans and check their benefits, affordability and other features before you get one. (A term insurance calculator can help you in making this decision.)

To sum it up:

The LTC Cash voucher scheme is an excellent tax-saving initiative by the government. Instead of letting your leave encashment and travel fare reimbursement go to waste, you can make use of this scheme and save your hard-earned money. Moreover, you can avail the benefits of the scheme from the comfort of your home thanks to the digital requirements of purchase and payments under it. Before you do, surely check to see if you fall within the eligibility rules and then proceed.

Disclaimer: This is a company press release. No HT journalist is involved in creation of this content.

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