The scheme would not be available for employees who have availed new concessional personal tax regime, which provides reduced tax rates in lieu of forgoing major exemptions and deductions.

By Amarpal S Chadha

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The Covid-19 pandemic has been unique and unprecedented. It brings multi-fold challenges in the social and economic lives of people. To address the economic situation, the government has provided various relaxations to the individuals such as extension of various due dates of compliances, the introduction of loan moratorium, relaxation of residency rules, etc.

Under the Income-tax Act, 1961, two round trip journeys in a block of four calendar years are eligible for tax benefits as Leave Travel Concession/ Allowance (LTC/ LTA). Since employees are unable to travel in the current year falling in the block of 2018-21, the government has taken cognizance of this fact and appropriately rolled out Leave Travel Concession Cash Voucher Scheme (the Scheme) for central government and non-central government employees, including the private sector.

LTC cash voucher scheme

The scheme is quite innovative, socially and economically engineered to balance the needs of the economy and taxpayers. An important aspect of the overall scheme is that even if you do not travel, you are eligible to receive your LTC/ LTA eligibility as tax-free allowance subject to fulfilment of certain conditions. Under the scheme, if an employee spends three times of eligible LTC/ LTA, he would be eligible to receive LTC/ LTA equivalent, without levy of any income tax. However, the spend has to be towards the purchase of goods or services, which attract GST rate of 12% or more and the payment has to be via digital mode only. The invoice should bear the name of the employee or family members eligible for LTC/ LTA. The spend needs to be done in the window of October 12, 2020 to March 31, 2021.

To illustrate, Richa, employed with a leading IT company, could not travel due to the pandemic. She has a family of four members and has opted for LTC entitlement of Rs 80,000. If she spends three times (i.e., Rs 2,40,000) on purchase of goods such as television, air conditioner, mobile, fridge, etc., she would be eligible to receive Rs 80,000 as allowance without any taxes. Since she falls in the maximum marginal tax rate of 42.74%; she would save taxes of around Rs 34,000. Had she not availed the scheme, she would have ended up paying Rs 34,000 as taxes on receipt of LTA of Rs 80,000, despite spending on white goods and eligible services.

Not for new tax regime

The scheme would not be available for employees who have availed new concessional personal tax regime, which provides reduced tax rates in lieu of forgoing major exemptions and deductions.

To implement the scheme for the private sector, employers need to set up a process to verify the invoices submitted by the employees to ensure all the conditions are being satisfied (GST rate, digital payment, name of employee, eligible period of invoice, etc.). Moreover, whether unclaimed LTA benefits could be carried forward to next year or will it lapse, needs clarity from the government.

The scheme could be a game-changer and is expected to stimulate overall consumption in the current fiscal year, along with enhanced GST collection. It is also a win-win for taxpayers who can save taxes on the LTA amount and purchase long cherished items. So, whether you travel or not, avail the benefits of LTC Cash Voucher Scheme.

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