Two weeks after it announced the Leave Travel Concession (LTC) voucher scheme as part of its consumption-boosting measures, the government on Thursday extended the income-tax exemption available under the LTC cash voucher scheme to non-central government employees which include employees of state governments, state-owned enterprises and the private sector.
The income tax exemption shall not be applicable for those opting for the concessional income tax regime introduced last year and employees will have to refund the unspent LTC fare received from the employer.
The payment of cash allowance, subject to maximum of Rs 36,000 per person as deemed LTC fare per person (Round Trip) to non-central government employees will be allowed income-tax exemption subject to fulfilment of conditions, the Central Board of Direct Taxes (CBDT) said in a statement.
“In order to provide the benefits to other employees (i.e. non-Central Government employees) … it has been decided to provide similar income-tax exemption for the payment of cash equivalent of LTC fare to the non-Central Government employees also,” the CBDT said.
Tax exemption under the LTC cash voucher scheme requires the employees to spend a sum equal to three times of the value of the deemed LTC fare on purchase of goods/services carrying a GST rate of 12 per cent or more from GST registered vendors/service providers through digital mode between October 12, 2020 to March 31, 2021 and obtain a voucher indicating 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.
Also, an employee who spends less than three times of the deemed LTC fare under the cash voucher scheme 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, it said.
Aim is to boost growth
The aim of the scheme is to stimulate growth in the economy. The payment of cash allowance, subject to maximum of Rs 36,000 per person as deemed LTC fare per person (Round Trip) to non-central government employees will be allowed income-tax exemption subject to fulfilment of conditions.
To stimulate growth in the economy, the government had on October 12 announced a twin set of measures to boost consumption demand: LTC voucher scheme and a festival advance for government employees. The scheme had provided that since the cash allowance of LTC fare is in lieu of deemed actual travel, the same shall be eligible for income-tax exemption on the lines of existing income-tax exemption available for LTC fare.
CBDT said that since 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 shall not be entitled for this exemption. A legislative amendment to provide for the changes shall be brought in due course, it said.
Explaining further the CBDT said if the deemed LTC Fare is Rs 20,000 x 4 = Rs 80,000, then the amount to be spent under the scheme is Rs 80,000 x 3 = Rs 2,40,000. Thus, if an employee spends Rs 2,40,000 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 Rs. 1,80,000 only, then he shall be entitled for 75 per cent (i.e. Rs. 60,000) of deemed LTC fare and the related income-tax exemption. In case the employee already received Rs. 80,000 from the employer in advance, he has to refund Rs. 20,000 to the employer as he could spend only 75 per cent of the required amount.
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