“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 finance ministry said.
Here are key things to know about the scheme:
* The LTC scheme allows tax-free payout of the travel allowance without taking the trip amid the ongoing Covid-19 crisis. The step has been taken to incentivise consumption and thereby giving a boost to expenditure.
*Cash allowance: The payment of cash allowance, subject to maximum of Rs 36,000 per person as deemed LTC fare per person (round trip), will be allowed for tax exemption after fulfilment of conditions. The scheme is applicable for 2018-19.
* Spending criteria: The conditions for availing tax exemption under the LTC cash voucher scheme require an employee to spend a sum equal to three times of the value of the deemed LTC fare on purchase of goods and services which carry a GST rate of 12 per cent or more from GST registered vendors or service providers through digital mode between October 12, 2020 to March 31, 2021 and obtains a voucher indicating the GST number and the amount of GST paid.
*How much a family can claim: A four-member family can at best claim Rs 1.44 lakh but will need to spend Rs 4.32 lakh on purchasing cars, refrigerators or laptops to avail of a tax benefit of Rs 43,200.
* What if an employee spends less: For instance, 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. As per the finance ministry, if a person spends only 75 per cent of the requirement, entitlement of cash allowance and the tax break will stand reduced to that extent.
If the deemed LTC fare is Rs 80,000 for a family of four and the employee spends Rs 1.8 lakh, then s/he will be entitled to Rs 60,000 of deemed LTC fare and the related income-tax exemption. In case the employee has already received Rs 80,000 as advance from the employer, then she will have to refund Rs 20,000 to the employer as only 75 per cent could be spent. Also, one may land in trouble by taking advance from the employer and not spending the required amount.
* Can LTC cash scheme availed under new I-T regime? It must be noted that the LTC benefit will not accrue to those who have opted for the new tax regime, where they will pay a lower levy but forego all exemptions.
“An employee who has exercised an option to pay income tax under concessional tax regime under section 115BAC of the Income-tax Act, 1961 shall not be entitled for this exemption,” finance ministry stated.