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Income-tax exemption of LTC Cash Voucher to non-central government employees extended
Due to COVID-19, all businesses have been hit and so is the LTC planning of the employee.
As a result of travel restrictions, social distancing norms & safety concern, most of the employees would not be in a position to avail Leave Travel Concession (LTC) in the current Block of 2018-21.
So as to compensate central government employees and incentivise consumption, the finance Ministry has allowed payment of cash allowance equivalent to LTC fare to Central Government employees, subject to certain conditions.
The said cash allowance shall be eligible for income-tax exemption on the lines of existing income-tax exemption available for LTC fare.
The press Release extending the similar income-tax exemption for the payment of cash equivalent of LTC fare to the non-central government employees has been issued on 29/10/2020.
The key features are as under:
- All non-central government employees (the employees) will be entitled to claim the benefit, subject to fulfillment of certain conditions.
- There is a maximum cap prescribed for this. The payment of cash allowance is subject to maximum of INR 36,000 per person as Deemed LTC fare per person (Round Trip) to non-central government employees.
- Following conditions should be satisfied for claiming the exemption:
- The employee exercises an option for the deemed LTC fare in lieu of the applicable LTC in the Block year 2018-21.
- Condition with respect to spending:
iii. Spending of three times of the value of the deemed LTC fare
- Towards purchase of goods/services
- Such goods / services should carry GST rate of not less than 12%
- They should be purchased from GST registered vendors/service providers
vii. The payment should be made through digital mode
viii. Such expenditure should be paid between 12 October 2020 and 31st of March 2021
- Voucher should indicate the GST number and the amount of GST paid
- The question arises as to what will happen if the employee spends less than three times of the deemed LTC? An employee who spends less than three times of the deemed LTC fare shall not be entitled to receive full amount of deemed LTC fare and the related income-tax exemption and the amount of both shall be reduced proportionately. This can be understood by following example:
Deemed LTC Fare: INR 20,000 x 4 (being number of people) = INR 80,000
Amount to be spent: INR 80,000 x 3 = INT 240,000
Thus, if an employee spends INR 240,000 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 INR 180,000 only, then he shall be entitled for 75% (i.e. INR 60,000) of deemed LTC fare and the related income-tax exemption. In case the employee already received INR 80,000 from employer in advance, he has to refund INR 20,000 to the employer as he could spend only 75% of the required amount.
- Another important question emerges due to new tax optional regime now introduced. Can employee claim this exemptionif they opted for new tax regime? As this exemption is in lieu of the exemption provided for LTC fare, an employee who has exercised an option to pay income tax under concessional tax regime under section 115BAC of the Income-tax Act, 1961 shall not be entitled for this exemption. The press release issued by CBDT provides that legislative amendment to the provisions of the Income-tax Act, 1961 for this purpose shall be proposed in due course. Furthermore, this press release also provides that the clarification issued in connection with the exemption granted to central government employees shall also be applicable to the non-central government employees.
- One may observe that any service which is having a GST component of more than 12% is permissible under the scheme.
- It has been specifically is clarified that the invoice which is being submitted for reimbursement under the Scheme should be in the name of the employee who is availing the Scheme. Care must be taken for this. Even procurement from e-commerce platform is also permissible provided the relevant invoice/details are submitted.
- It may be noted that an individual need not take leave for this purpose nor undertake any travel. This is a scheme in lieu of LTC travel.
- Not single, even multiple bills are accepted. The purchase should have been done from the date of issue of Office Memorandum (i.e. 12 October 2020) till the end of the current fiscal year. The purchase should carry a GST of 12% and above and payment should have been made to digital mode.
- Though there are not any limit on number of transactions, still the number of transactions may be limited to a minimum extent to avoid any difficulty / delay.
- It may be noted that there is no prescribed format. A simple application conveying the desire of the employee for availing the Scheme, if advance is required for the purpose the same is to be mentioned.
- It may be noted that the reimbursement is based on the production of invoice with details of GST. As far as possible, the claim should be made and settled well before 31 March 2021 to avoid any last-minute rush and resultant lapse.