The Income Tax Department extended the I-T exemption under the LTC Cash Voucher Scheme for the workers of state governments, state-owned enterprises, and the private sector. The Central Board of Direct Taxes in an announcement said that the payment of cash allowance, subject to a limit of Rs 36,000 for per person as deemed Leave Travel Concession (LTC) admission per person (Round Trip) to non-central government workers, will be allowed income-tax exemption subject to fulfillment of conditions.
In order to provide the benefits to other employees (i.e. non-central government employees) … it has been decided to provide a similar income-tax exemption for the payment of cash equivalent of LTC fare to the non-Central Government employees also,” the CBDT said. The conditions rolled out by the CBDT for availing the tax exemption under the LTC cash voucher scheme require the employee to spend a sum equal to three times of the value of the deemed LTC fare on the purchase of goods/services which carry a GST rate of 12% or more from GST registered vendor/service providers through digital mode between October 12, 2020, to March 31, 2021, and acquires a voucher showing the GST number and the amount of GST paid.
The employees have to exercise an option for the deemed LTC fare in lieu of the applicable LTC in the Block year 2018-21.
Likewise, a worker who spends less than three times the deemed LTC fare under the cash voucher scheme will not be entitled to receive the full amount of deemed LTC fare and the related income-tax exemption and the amount of both shall be reduced proportionately. So as to remunerate central government workers and incentive consumption, in this manner giving a boost to consumption expenditure, the government had on October 12 allowed payment of cash allowance equivalent to LTC fare to Central Government employees subject to fulfillment of specific conditions.
It has likewise been given that since the cash allowance of LTC fare is in lieu of deemed actual travel, the equivalent will be eligible for income tax exemption on the lines of existing income-tax exemption available for LTC Cash Voucher Scheme. Taking into account the Covid-19 pandemic and resultant cross country lockdown as well as disruption of transport and hospitality sector, as additionally the requirement for observing social distancing, a number of employees are not able to avail of LTC in the current Block of 2018-21.
The CBDT said that since this exemption is in lieu of the exemption provided for LTC Cash Scheme, an employee who has exercised an option to pay income tax under the concessional tax regime shall not be entitled to this exemption. “The legislative amendment to the provisions of the Income-tax Act, 1961 for this purpose shall be proposed in due course,” it added.
Clarifying further the CBDT said in the event that the deemed LTC Fare is Rs 80,000 (Rs 20,000 x 4), at that point the amount to be spent under the plan is Rs 2,40,000. Accordingly, if an employee spends Rs 2,40,000 or above on specified expenditure, he will be entitled to full deemed LTC fare and the related income tax exemption. However, in the event that the employee spends Rs 1,80,000 in particular, at that point he will be entitled to 75 percent (for example Rs. 60,000) of deemed LTC toll and the related income-tax exemption.
In the event that the worker previously got Rs 80,000 from the employer in advance, he is required to refund Rs 20,000 to the employer as he could spend just 75 percent of the required amount. Nangia and Co LLP Partner Shailesh Kumar said the effective income tax cut for workers may go between 6-9 percent of the amount of total expenditure incurred, depending on the highest tax slab applicable to the employee.
“Thus, this income tax benefit may actually be considered as a discount on expenditure, which employee has already planned to incur, instead of a reason to incur expenditure. On the other hand, income tax foregone by the Government may be offset by the additional GST revenue on expenditure incurred by the employees,” Kumar added.