LTC cash voucher scheme for employees: How will it work? Should you opt for it?3 min read . Updated: 13 Oct 2020, 06:02 PM IST
Take a look at how a central government employee can avail the LTC cash voucher scheme. From eligibility to tax benefits, here are the things you need to know before opting for it
Finance Minister Nirmala Sitharaman on Monday announced LTC cash voucher scheme for the central government employees to boost consumption ahead of the festive season. The employees will now be able to purchase goods and services in lieu of the tax-exempt portion of the Leave Travel Concession or Leave Travel Allowances (LTC/LTA).
Under LTA, the employer reimburses the travel cost of the family of the employee to any place on a holiday or to employees home town. Only the travel cost is reimbursed and the extent of reimbursement is subject to the designation of the employee. LTC is exempted under the income tax act subject to certain conditions. The exemption is allowed for only two travels within a block of four years.
In the wake of coronavirus pandemic, people are avoiding travel. "Considering this peculiar scenario and due to the need to boost demand, the government has introduced new LTC voucher scheme wherein the Central government and its PSUs shall pay to its employees the maximum amount of LTC that can be availed by such employee, upon fulfilling certain spending related conditions. The same shall be exempt from tax," said Divakar Vijayasarathy, founder and managing partner, DVS Advisors LLP.
The cash equivalent of entitled LTC fare and leave encashment will be given to the employee if they fulfill the following conditions:
1)The employee spends 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
2)The item purchase or services availed shall carry a GST Rates not less than 12%.
3)Such purchase shall be from GST registered vendors or service providers through digital mode
4)The employee shall obtain a voucher indicating the GST number and the amount of GST paid.
5)The money on goods/services must be spent before March 31, 2021.
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: ₹6000 (per person Round Trip)
Who are eligible:
The above scheme will be available for central government and PSU employees. However, the finance minister requested all the private companies and state governments to implement the same for their employees.
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 benefit is only to the extent of reimbursement in cash of the maximum amount of LTC eligible to them," said Vijayasarathy.
As indicated above, travel by an employee and or his or her family members is one of the conditions to avail the exemption under LTA/LTC. "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 announcement is indeed a welcome step by the finance minister and would definitely entail tax savings to the individuals who are getting LTA/ LTC from their respective employers. If the employee intends to avail the benefits under the tax concession scheme, the employee will have to spend three times of the amount received as LTA and an amount equal to the value of leave encashment," said Deepak Agarwal, associate partner, Avitr Legal.
"It must be noted that in order to avail of this package, an employee should opt for both leave encashment and LTC fare. Tax exemption, TDS shall not be required to be deducted on the reimbursement of deemed LTD fare," said Angad Sandhu, partner - PSL Advocates & Solicitors.
"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. Still there are some uncertain or unclear things in case in terms of the income tax applicability," said Kapil Rana, founder and chairman, HostBooks.