- Date : 16/02/2021
- Read: 6 mins
Everything you wanted to know about the LTC cash voucher scheme.
The restrictions imposed from March 2020 due to COVID-19 impacted businesses and individuals alike. This is evident from the fact that India’s GDP is estimated to contract by more than 10% in FY 2021. However, the Indian government has also taken various measures to ensure that economic activity picks up.
As a part of one of the stimulus packages in October 2020, the finance minister announced the leave travel concession (LTC) cash voucher scheme. According to this scheme, an employee would be able to claim income tax exemption on deemed LTC fare without any actual travelling, as long as they incur specified expenditure.
This scheme was initially rolled out for central government employees and then extended to non-central government employees, including those working in the private sector. This initiative was meant to boost consumption as employees would receive tax benefit and businesses would be able to gain from increased demand.
Here are answers to some FAQs that will address all your doubts on the scheme.
Is an employee required to travel to avail of this scheme?
The LTC cash voucher scheme is offered in lieu of the leave travel allowance (LTA) scheme and an employee does not need to travel to avail of it.
Can an employee avail of this scheme if LTC for the block has been exhausted?
An employee is granted both LTC and leave encashment for a particular block year. In case the employee has exhausted their LTC for the block year, they are still eligible to collect an amount equivalent to the leave encashment.
How is the eligibility amount for LTC decided?
The government has specified the total eligibility amount, which is based on the number of employees in the family and the eligibility of fare for the employee who is applying for such LTC cash. Deemed return fares have been fixed at Rs 36,000 (business travel), Rs 20,000 (economy travel) and Rs 6000 (train travel).
Related: Avail LTC benefits on your insurance purchases till March 2021
Can a husband and wife who are both government employees avail of the scheme?
Yes. Both spouses can avail of this scheme, provided they spend the amount specified and provide invoices for the same.
What is the amount of LTC that can be availed of by an employee?
The employee can receive an allowance of their LTC amount if they spend three times the total LTC they are eligible to receive. For example, the maximum LTC fare that an employee can receive per round trip is Rs 36,000 per person.
So, an employee with three additional family members (spouse and two children) would have a maximum eligibility of Rs 1,44,000. To avail of a tax exemption of Rs 1,44,000, the employee would have to spend Rs 4,32,000 on the eligible items.
Will an employee be ineligible for the exemption if they fail to spend the specified amount?
If the total amount is not spent, the employee will not be ineligible but will receive allowance and tax benefit on a pro rata basis. For example, if they spend Rs 3,90,000 instead of the mandated Rs 4,32,000, they will be eligible for a tax exemption of only up to Rs 1,30,000.
Related: FM relaxes rules of LTC cash voucher scheme
Can an employee purchase such products in cash?
The employee must purchase the products using digital modes such as UPI, BHIM, netbanking, or debit/credit card.
Is there a limit to the number of products an employee can purchase?
There is no limit on the number of products that an employee can buy. The products must have been purchased after 12 October 2020 (the date when the scheme was announced) and before 31 March 2021 to get the benefit of LTC cash voucher exemption.
Is there a form that must be submitted for availing of the scheme?
The employee does not have to submit any specific form with their employer or the Income Tax department. They merely need to make an application stating the items bought, mentioning the total amount spent on such products, and attaching bills attesting to the same.
Are all items eligible to be purchased under the scheme?
Since the scheme was devised to boost consumption in a bid to revive the economy, it specifies that only products or services that attract GST of 12% or more are eligible. Most products with GST of 12% or below fall in the essential or affordable segment.
Can an employee purchase products online?
Those availing of this scheme can choose to purchase products either online or offline, so long as they can produce bills for the purchases. The bills must be in their name if they wish to claim the benefits. Employees can even purchase goods on EMI, as long as it falls within the period stated by the government.
Can an employee from a private company avail of this scheme?
Yes. An employee from a private organisation can avail of this scheme, provided their employer is offering the Leave Travel Allowance option to them.
Would an employee who has opted for the new tax regime be able to benefit from this scheme?
In the last budget, the government had announced a new income tax regime, with differential slab rates. Taxpayers who opt for this would have to forgo various tax exemptions and benefits. Such employees won’t be able to take advantage of the LTC cash scheme.
Can an employee avail of the scheme partially?
Yes. As mentioned earlier, employees can avail of the scheme partially. They would be eligible for tax benefits as well as cash allowance on a pro rata basis, depending on their spends. They can choose to avail of a partial amount later on purchase of another product or for travelling within the block year on a later date.
What services are eligible under the scheme?
An employee can avail of any service as long as the GST rate of such service is 12% or above. The government has also clarified that insurance premiums would also be eligible for reimbursement under this scheme.
Last words
The Indian government announced the LTC cash scheme with a view to boosting the economy. The criteria of having to spend three times the eligible amount in a limited period may adversely affect the consumption growth anticipated, but the purchase of necessary items as well as inclusion of the insurance sector are expected to boost discretionary consumption. All you need to know about Leave Travel Allowance (LTA).
The restrictions imposed from March 2020 due to COVID-19 impacted businesses and individuals alike. This is evident from the fact that India’s GDP is estimated to contract by more than 10% in FY 2021. However, the Indian government has also taken various measures to ensure that economic activity picks up.
As a part of one of the stimulus packages in October 2020, the finance minister announced the leave travel concession (LTC) cash voucher scheme. According to this scheme, an employee would be able to claim income tax exemption on deemed LTC fare without any actual travelling, as long as they incur specified expenditure.
This scheme was initially rolled out for central government employees and then extended to non-central government employees, including those working in the private sector. This initiative was meant to boost consumption as employees would receive tax benefit and businesses would be able to gain from increased demand.
Here are answers to some FAQs that will address all your doubts on the scheme.
Is an employee required to travel to avail of this scheme?
The LTC cash voucher scheme is offered in lieu of the leave travel allowance (LTA) scheme and an employee does not need to travel to avail of it.
Can an employee avail of this scheme if LTC for the block has been exhausted?
An employee is granted both LTC and leave encashment for a particular block year. In case the employee has exhausted their LTC for the block year, they are still eligible to collect an amount equivalent to the leave encashment.
How is the eligibility amount for LTC decided?
The government has specified the total eligibility amount, which is based on the number of employees in the family and the eligibility of fare for the employee who is applying for such LTC cash. Deemed return fares have been fixed at Rs 36,000 (business travel), Rs 20,000 (economy travel) and Rs 6000 (train travel).
Related: Avail LTC benefits on your insurance purchases till March 2021
Can a husband and wife who are both government employees avail of the scheme?
Yes. Both spouses can avail of this scheme, provided they spend the amount specified and provide invoices for the same.
What is the amount of LTC that can be availed of by an employee?
The employee can receive an allowance of their LTC amount if they spend three times the total LTC they are eligible to receive. For example, the maximum LTC fare that an employee can receive per round trip is Rs 36,000 per person.
So, an employee with three additional family members (spouse and two children) would have a maximum eligibility of Rs 1,44,000. To avail of a tax exemption of Rs 1,44,000, the employee would have to spend Rs 4,32,000 on the eligible items.
Will an employee be ineligible for the exemption if they fail to spend the specified amount?
If the total amount is not spent, the employee will not be ineligible but will receive allowance and tax benefit on a pro rata basis. For example, if they spend Rs 3,90,000 instead of the mandated Rs 4,32,000, they will be eligible for a tax exemption of only up to Rs 1,30,000.
Related: FM relaxes rules of LTC cash voucher scheme
Can an employee purchase such products in cash?
The employee must purchase the products using digital modes such as UPI, BHIM, netbanking, or debit/credit card.
Is there a limit to the number of products an employee can purchase?
There is no limit on the number of products that an employee can buy. The products must have been purchased after 12 October 2020 (the date when the scheme was announced) and before 31 March 2021 to get the benefit of LTC cash voucher exemption.
Is there a form that must be submitted for availing of the scheme?
The employee does not have to submit any specific form with their employer or the Income Tax department. They merely need to make an application stating the items bought, mentioning the total amount spent on such products, and attaching bills attesting to the same.
Are all items eligible to be purchased under the scheme?
Since the scheme was devised to boost consumption in a bid to revive the economy, it specifies that only products or services that attract GST of 12% or more are eligible. Most products with GST of 12% or below fall in the essential or affordable segment.
Can an employee purchase products online?
Those availing of this scheme can choose to purchase products either online or offline, so long as they can produce bills for the purchases. The bills must be in their name if they wish to claim the benefits. Employees can even purchase goods on EMI, as long as it falls within the period stated by the government.
Can an employee from a private company avail of this scheme?
Yes. An employee from a private organisation can avail of this scheme, provided their employer is offering the Leave Travel Allowance option to them.
Would an employee who has opted for the new tax regime be able to benefit from this scheme?
In the last budget, the government had announced a new income tax regime, with differential slab rates. Taxpayers who opt for this would have to forgo various tax exemptions and benefits. Such employees won’t be able to take advantage of the LTC cash scheme.
Can an employee avail of the scheme partially?
Yes. As mentioned earlier, employees can avail of the scheme partially. They would be eligible for tax benefits as well as cash allowance on a pro rata basis, depending on their spends. They can choose to avail of a partial amount later on purchase of another product or for travelling within the block year on a later date.
What services are eligible under the scheme?
An employee can avail of any service as long as the GST rate of such service is 12% or above. The government has also clarified that insurance premiums would also be eligible for reimbursement under this scheme.
Last words
The Indian government announced the LTC cash scheme with a view to boosting the economy. The criteria of having to spend three times the eligible amount in a limited period may adversely affect the consumption growth anticipated, but the purchase of necessary items as well as inclusion of the insurance sector are expected to boost discretionary consumption. All you need to know about Leave Travel Allowance (LTA).
