LTC cash voucher scheme for employees: Key things to know before you opt for it2 min read . Updated: 18 Oct 2020, 10:27 AM IST
- The central government employees now have an option to avail the cash equivalent of entitled LTC fare and leave encashment
- It must be noted that in order to avail of this package, an employee should opt for both leave encashment and LTC fare
The Centre has recently introduced LTC cash voucher scheme for the central government and public sector employees. An employee is eligible for LTC and leave encashment of 10 days for travel to home town or any other destination twice in a block of four years. The cost of ticket is exempt whereas the leave encashment is taxable. As travel has become restricted in the wake of coronavirus pandemic, the central government employees now have an option to avail the cash equivalent of entitled LTC fare and leave encashment.
The employees are now eligible to purchase goods and services in lieu of the tax-exempt portion of the LTA or LTC.
But to avail these scheme, an employee needs to spend an an amount equal to the value of leave encashment and an amount three times of the cash equivalent of deemed fare, on purchase of items or avail services. The spending has to be done through the digital mode before March 31 on goods and services that attract GST of 12% or more. The employee shall obtain a voucher indicating the GST number and the amount of GST paid.
The deemed LTC fare for this purpose is as follows:
1) Employees who are entitled to business class of airfare: ₹36,000 (per person Round Trip)
2) Employees who are entitled to economy class of airfare: ₹20,000 (per person Round Trip)
3) Employees who are entitled to Rail of any class: ₹6,000 (per person Round Trip)
Govt LTC is quite different from LTA in corporate sector
"The government LTC is quite different from Leave Travel Allowance in the corporate sector. A person claiming LTC is not eligible unless he actually travels; if he fails to travel the amount is deducted from his pay and he may be liable for disciplinary action. He does not have the option of keeping the money and paying income tax," finance ministry said in note.
Under the government system, the employee had only two choices: 1)Travel and spend (and the incidentals like hotel, food,etc. are to be incurred by him) or 2) Forgo the entitlement if not claimed within the date. Now a third option of "spend on something other than travel" has been given. In the current COVID environment, travel carries serious perceived health risks, the statement by finance ministry stated.
Should you opt for it?
This scheme is completely optional and the employees can either choose avail the scheme or opt for the regular LTC in the subsequent years in the block. The current block is between 2018-2021. It must be noted that in order to avail of this package, an employee should opt for both leave encashment and LTC fare.
"Those employees who were not planning to avail or have not been able to avail of the the LTC owing to fear of the pandemic, have an opportunity to claim LTC under the new scheme, which would have otherwise lapsed on March 31, 2021," said Nand Kishore, partner, DSK Legal.
"The benefit is only to the extent of reimbursement in cash of the maximum amount of LTC eligible to them. In other words the goods or services which the employee opts to avail in order to claim the benefits would be available at a discount due to this reimbursement," Divakar Vijayasarathy, Founder and Managing Partner, DVS Advisors LLP.
"Tax exemption, TDS shall not be required to be deducted on the reimbursement of deemed LTD fare," said Angad Sandhu, partner - PSL Advocates & Solicitors.