Finance Minister Nirmala Sitharaman announced on Monday an LTC cash voucher program for central government employees to boost consumption ahead of the holiday season. Employees will now be able to purchase goods and services in lieu of the tax-exempt portion of the Leave Travel Grant or Leave Travel Permits (LTC / LTA).
Under the LTA, the employer reimburses the employee’s family travel cost to anywhere during the vacation or to the employee’s hometown. Only the cost of the trip is reimbursed and the amount of the reimbursement is subject to the employee’s designation. LTC is exempt under the law from income tax subject to certain conditions. The exemption is allowed only for two trips within a four-year block.
In the wake of the coronavirus pandemic, people avoid traveling. “Considering this peculiar scenario and due to the need to boost demand, the government has introduced a new LTC voucher scheme in which the Central Government and its UPMs will pay their employees the maximum amount of LTC that can be received by said employee, by meeting certain conditions related to spending. They will be exempt from taxes, “said Divakar Vijayasarathy, founder and managing partner of DVS Advisors LLP.
The employee will receive the cash equivalent of the entitled LTC fee and the license fee if they meet the following conditions:
1) The employee spends an amount equal to the value of the license fee and an amount three times the LTC and one time the amount of the license fee to purchase non-food items, that is, household appliances.
2) The purchase of the item or services used will have a GST rate of not less than 12%.
3) Said purchase must be from registered GST providers or service providers through digital mode.
4) The employee will need to obtain a voucher indicating the GST number and the amount of GST paid.
5) Money on goods / services must be spent before March 31, 2021.
The estimated LTC fee for this purpose is as follows:
1) Employees entitled to business class airfare: ₹36,000 (per person round trip)
2) Employees entitled to economy class airfare: ₹20,000 (per person round trip)
3) Employees who are entitled to Railways of any kind: ₹6000 (per person round trip)
Who are eligible:
The above scheme will be available to central government and PSU employees. However, the Minister of Finance asked all private companies and state governments to implement the same for their employees.
Should you go for it?
“This scheme is completely optional and employees can choose to use the scheme or opt for regular LTC in subsequent years in the block. The benefit is only to the extent of cash reimbursement of the maximum amount of LTC eligible for them, “said Vijayasarathy.
As indicated above, the travel of an employee and / or their family members is one of the conditions to make use of the exemption under LTA / LTC. “Those employees who did not plan to make use of the LTC or who were unable to do so due to fear of the pandemic, have the opportunity to claim LTC under the new scheme, which would otherwise have expired on March 31, 2021.” said Nand Kishore, partner at DSK Legal.
“The announcement is indeed a welcome step by the finance minister and would definitely entail tax savings for people who receive LTA / LTC from their respective employers. If the employee intends to take advantage of the benefits under the tax relief scheme, the employee will have to spend three times the amount received as LTA and an amount equal to the value of the license fee, “said Deepak Agarwal, associate partner of Avitr Legal.
“It should be noted that to take advantage of this package, an employee must opt for the charge of the license and the LTC fee. Tax exemption, TDS will not be required to be deducted from the refund of the LTD fee considered,” said Angad Sandhu. partner – PSL Advocates & Solicitors.
Fiscal benefits:
“Although the TDS applies to the license fee, the amount that is related to the cash reimbursement of the LTC fee instead of the actual trip considered will be allowed as an exemption under the current provisions. Therefore, the TDS provision is not it applies to the amount of the LTC fee, which is being reimbursed by the employer. There are still some things that are uncertain or unclear in the case in terms of the applicability of income tax, “said Kapil Rana, founder and president of HostBooks.
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