The COVID-19 pandemic and the consequent nationwide lockdown disrupted people’s travel plans. This has meant that many are not able to utilise the Leave Travel Allowance (LTA) available in their salary structures.
Considering the difficult economic environment, and in order to incentivise individuals to utilise their unclaimed LTA amounts and to boost consumer demand, the government has issued relaxed guidelines. The guidelines have considered the payment of a cash allowance equivalent to the deemed LTC fare to central government employees in lieu of LTA by introducing the LTC Cash Voucher Scheme on October 12, 2020. The LTC scheme was further extended to non-central government employees on October 29, 2020 followed by multiple set of frequently asked questions providing a similar income tax exemption, thereby bringing relief to private sector employees as well.
How private sector employees can avail the LTC cash voucher scheme
An employee is required to fulfil the following conditions to avail the benefit under the scheme:
- The LTC scheme requires employees to spend three times the amount of deemed LTC fare on the purchase of goods/services, having a GST rate of 12 per cent or more;
- The amount must be spent during the period October 12, 2020-March 31, 2021;
- The payment must be made through a digital mode which includes cheque, UPI, debit/credit card etc. and
- Employees are required to furnish copy of invoices to the employer containing GST number of the vendor and GST amount paid. The employees also have an option to submit self-attested copy of the invoices in case they want to retain the original copies for their future reference.
If conditions of the LTC scheme are met, the deemed LTC fare paid to the employees will be tax-exempt, certainly removing the condition of mandatory travel.
As clarified by FAQs, the employees also have an option to submit the invoices in the name of family members as well.
Tax benefit available under LTC scheme
The guidelines of the LTC scheme for private sector employees provide a maximum benefit of Rs 36,000 per person.
To illustrate, for a family consisting of 3 members, the deemed value of LTC exemption would be as follows:
|No. of members in the family (A)||3|
|Maximum exemption available (B=36000*A)||108,000|
|Expenditure incurred by the family (C)||3,24,000|
|Expenditure to be incurred to avail maximum exemption (D=B*3)||3,24,000|
|Eligible non-taxable allowance receivable by the employee (E=C/D*B)||1,08,000|
In case the amount spent is less than 3 times the eligible amount, the exemption will be allowed proportionately. The LTC scheme was rolled out for the benefit Central Government employees and it was extended later to cover the private sector employees.
However, the private sector employers generally provide LTA policy for travel expenses as part of their compensation structure and it is unclear how they could adopt the new LTC scheme in the current form. Further, there is no FAQ specifically issued addressing the implementation aspects e.g.: once the scheme is rolled out, whether the remaining amount not supported by invoices will be paid to the employee as a taxable component as contrasting with the Central Government employee where the same is paid only when the employee actually spends as per the LTC Scheme.
Recently the CBDT has issued a circular dated December 3, 2020, on TDS compliance providing that the employer shall allow income tax exemption only on the fulfilment of conditions specified in LTC scheme on such spending. The circular has not specifically addressed the implementation aspects as discussed above.
Although the LTC scheme has been extended to the private sector for more than a month, private sector employees are in a dilemma on the approach, as most organisations are still figuring out the way forward and awaiting the legislative amendment by the Government.
With less than four months to go for the close of the financial year, many organisations are hoping that the Government accelerates the process of legislative amendment and provides additional clarity so that the LTC scheme can be best utilised by the employees and tax withholding obligations are met without any hassle by the employer.
Employees are hopeful that organisations will look at their current LTA policy and roll out the communication to employees to avail benefits under the newly announced LTC scheme.
Certainly, the LTC scheme is a welcome move, meeting dual objectives, i.e., liberalising the existing LTA exemption and incentivising consumption. Employers and employees need to work together so that the employer rolls out the LTC scheme and the employees meet the conditions to avail the benefit under the scheme.
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