The Income Tax Department has extended the income tax exemption available under the LTC cash voucher scheme to employees of state governments, state-owned enterprises and private sector. The government had on October 12 allowed payment of cash allowance equivalent to LTC fare to Central Government employees subject to fulfilment of certain conditions. The payment of cash allowance is subject to maximum of ₹36,000 per person as Deemed LTC round trip fare subject to fulfilment of prescribed conditions.
Here are 5 things to know about the income tax exemption on LTC cash voucher scheme:
1) This clarification provides the exemption for private sector employees who are eligible to claim the leave travel allowance, says Aarti Raote, Partner, Deloitte. Unfortunately, employees who have opted for the simplified tax regime will not be able to take the benefit of the exemption, she says, adding that “this is a welcome step by the government given the festive season is just round the corner.”
2) To avail this tax benefit, the employee is required to spend three times the eligible amount on the purchase of goods/services which carry a GST rate of not less than 12% from GST registered vendors/service providers through digital mode.
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.
Explaining further the CBDT said if the deemed LTC Fare is ₹80,000 ( ₹20,000 x 4), then the amount to be spent under the scheme is ₹2,40,000. Thus, if an employee spends ₹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 ₹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 ₹80,000 from employer in advance, he has to refund ₹20,000 to the employer as he could spend only 75 per cent of the required amount
3) The maximum deemed LTC fare per person is Rs. 36,000, which would entail a maximum deduction of Rs. 144,000 for a person with a family of four, says Sraswathi Kasturirangan, Partner, Deloitte. This could translate to a tax benefit around Rs. 61,556 at the maximum marginal rate of 42.744%, she adds.
4) “The expenditure could be incurred during the period from the 12th of October, 2020 to 31st of March, 2021. Suitable vouchers indicating the GST number and the amount of GST paid is required to be submitted. Where a lower amount of expenditure is incurred, the exemption shall be available in a proportionate manner,” says Sraswathi Kasturirangan.
“Employees could consider the expenditure on purchase of white goods such as refrigerators, washing machines, mobiles, two wheelers/ four wheelers other than electric vehicles for this purpose since the GST rate for these would meet the above criteria. Further the GST rates for most services would fall under this category,” she adds.
5) The employees have to exercise an option for the deemed LTC fare in lieu of the applicable LTC in the Block year 2018-21.
Source: Professional Updates