Things You should know about LTC Cash Voucher Scheme towards Tax Exemption in lieu of LTA for FY 2020-21

The COVID-19 pandemic that followed us into 2020 with nationwide lockdown disrupted significant parts of people's lives—disrupting the nation's economy, including government and private sectors. While people have worked from home there, travel plans came to a halt due to nationwide lockdown. This has meant that many cannot use the Leave Travel Allowance (LTA) available in their salary structures. However, the government indeed gave an incentive to this and issued the LTC Cash Voucher Scheme. Many e-commerce companies like Amazon, Flipkart etc. are also giving info on LTC here Amazon Tax Benefits on Mobiles, Appliances, TVs & more - In Lieu of Leave Travel Concession Benefit.

LTA is a type of allowance that the employer provides to his employee traveling on leave from work to cover his travel expenses. LTA is an essential element of the employee's salary as it is acceptable for income tax exemption under the Income Tax Act, 1961.

Acknowledging the challenging economic environment and to provide individuals with an incentive to use their unclaimed LTA amounts and boost consumer demand, the government has issued relaxed guidelines by launching the LTC Cash Voucher Scheme.

Leave Travel Concession (LTC) is a type of salary component where your employer provides yearly benefit to travel for you and your family. Usually, it is mentioned as a yearly component but will be paid monthly wise. This facility will be availed to only “Family” members. 

Leave Travel Concession was primarily issued to central government employees on October 12, 2020, further extended to non-central government employees on October 29, 2020, including state governments, public sector enterprises, banks, and the private sector. Therefore, the LTC scheme & tax exemption is also applicable to employees working with the Private sector, Public sector undertaking and State Government.

Under the LTC Scheme, employees can purchase goods and avail services that attract a GST (Goods and Services Tax) rate of 12% or more instead of travel in the current Block of 2018-21. This amount is also extended to other goods with 12% Gst rate on Pharmacies, Supermarkets and more by sharing medical bills and invoices. 

An employee is expected to meet the following conditions to avail of the benefit under the scheme:

• The LTC scheme wants employees to spend three times the amount of assumed LTC expense on purchasing goods/services, having a GST rate of 12% and above.
• The amount needs to be spent during the period October 12, 2020-March 31, 2021.
• All the payment must be made through a digital mode which includes cheque, UPI, debit/credit card etc. and expected to provide a copy of invoices to the employer containing the GST number of the vendor and the GST amount paid.
• The employees also can submit a self-attested copy of the invoices if they want to retain the original documents for their future reference.
• If the LTC scheme requirements are met, the deemed LTC fare paid to the employees will be tax-exempt, absolutely removing the condition of mandatory travel.

The employees also have an alternative to submit the invoices in the name of family members as well. The LTC scheme guidelines for private-sector employees provide a maximum benefit of Rs 36,000 per person.

Assume Mr A is an employee of a corporate sector under the LTA scheme. Mr A is eligible for an AC tier-2 train ticket to a destination of his choice across India. Mr A will be eligible to get a round-trip fare of Rs. 6,000 per person. For a family of four, this will come to Rs. 24,000.

To acquire this cash pay-out of Rs. 24,000, the employee has to spend the amount thrice: Rs. 72,000. If the employee is also eligible for a leave, that amount must also be spent along with this amount. So if the employee receives Rs. 16,000 as leave encashment, his total spend should be Rs. 88,000, and the benefit will be approximately Rs. 40,000.

It is necessary to note that the budget has clarified that the scheme is applicable only up to 31 March 2021 against an extension's expectations. 

With less than one and a half months to go for the financial year's close, the companies should explore the LTC scheme backed by legislative reforms to give employees adequate relief.

Indeed, the LTC scheme is a welcome move toward improving the existing LTA exemption and incentivizing consumption. Both parties need to work together to work out the LTC scheme to benefit under the scheme. There are many such leeways like you can pay Life insurance on discount, use multiple ways to save while making payment.