Leave Travel Concession Cash Voucher Scheme: Applicability, tax incentive – Here’s all you need to know
November 19, 2020 11:23 AM
With a view to revive the economy by boosting consumer spending and increasing capital expenditure by states, the Finance Minister has recently brought in various fiscal support packages.
This scheme is applicable to the LTC fare unutilised during the block period year i.e. 2018-2021.
The Novel Coronavirus (COVID-19) pandemic has been causing severe disruptions in the economy. However, of late, things are now to look up. With a view to revive the economy by boosting consumer spending and increasing capital expenditure by states, the Finance Minister (FM) has recently brought in various fiscal support packages.
One of the measures announced to boost consumer spending is the introduction of “Leave travel Concession (LTC) Cash Voucher Scheme”.
As per the Office Memorandum (OM) dated 12 October 2020, by the Ministry of Finance, the above scheme is applicable to Central Government employees. Further, through a press release on 29 October, the ministry issued that the scheme would also be applicable to non-Central Government employees as well.
Non-central government employees would include employees of state government, public sector employees, banks and private sector.
2) Deemed LTC Scheme
The scheme allows cash equivalent to LTC, comprising leave encashment and LTC fare of the entitled LTC, may be paid by way of reimbursement, if the employee opts for this in lieu of one LTC during the block period of 2018 -2021. Due to COVID-19 and consequent travel restrictions and maintaining of social distancing, employees have not been able to avail LTC in the current block period of 2018-2021. Hence, as an alternative, the above scheme has been introduced.
3) Riders linked to tax incentive
a. This scheme is applicable to the LTC fare unutilised during the block period year i.e. 2018-2021.
b. The amount both on account of leave encashment and fare shall be admissible if the employee spends – b.i. An amount equal to value of leave encashment b.ii. An amount 3 times of the value of the deemed LTC fare
c. The above expenditure should be incurred on purchase of goods/ services which carry GST rate of not less than 12% from GST vendor/service providers. Some of the examples of goods/ services attracting GST @ 12% or more are consumer goods, readymade garments, television/ internet/TV cable services, etc.
d. The payment to purchase the above goods/services should be through digital mode only.
e. The above expenditure should be incurred during the period 12 October 2020 to 31 March 2021.
f. The employee should obtain a voucher indicating the GST number and the amount of GST paid.
g. The employee who has exercised an option to pay tax under concessional tax regime under section 115BAC of Income tax Act, 1961 shall not be entailed for the above exemption.
h. An individual need not take leave for this purpose nor undertake any travel.
i. The deemed LTC fare is capped at INR 36,000 per person (round trip). For non-Central Government employees, payment of cash allowance of a maximum of Rs 36,000 per person as deemed concession fare would be allowed as income tax exemption subject to other terms and conditions.
For Central Government employees, there are specific slabs for maximum LTC concessions (Employee eligible for business class is Rs 36,000 per person per trip, employees eligible for economy class is Rs 20,000 per person and employees eligible for rail fare is Rs 6,000 per person per trip).
j. In case the employee spends less than the required amount, the tax exemption, and the LTC cash allowance will stand reduced by the proportion of the shortfall in spending.
k. If an employee has received an amount in advance which has some excess amount, then the employee would need to return this amount to the employer.
l. As per the OM dated 12 October, an amount up to 100% of leave encashment and 50% of the value of deemed fare may be paid as advance into the bank account of the employee which shall be settled based on production of receipts towards purchase and availing of goods and services. The claims under this package (with or without advance) are to be made and settled within the current financial year.
Deemed LTC Fare : Rs.20,000 x 4 = Rs. 80,000 Amount to be spent : Rs. 80,000 x 3 = Rs. 2,40,000
Thus, if an employee spends Rs. 2,40,000 or above on specified expenditure, he shall be entitled for full deemed LTC fare and the related income-tax exemption. However, if the employee spends Rs. 1,80,000 only, then he shall be entitled for 75% (i.e. Rs. 60,000) of deemed LTC fare and the related income-tax exemption.
The above measures are expected to stimulate demand and subsequently boost the economy.
(By Homi Mistry, Partner, Deloitte India, with Niji Arora, Senior Manager, and Tarika Agarwal, Manager with Deloitte Haskins and Sells LLP)