Getting LTC in Salary but cannot travel due to COVID -19: Government announces Tax Benefit

Before the widespread COVID-19 pandemic, many employees planned vacation trips with the benefit of Leave Travel Allowance (LTA). But now, owing to the harmful effects of illness caused by the coronavirus, the employees who had leave travel concession as an component in their salary structure may not be able to avail the tax exemption shortly even in the near future.

Thus, to provide benefit to the employees in order to boost their consumption expenditure, on 12th October 2020, the Government has allowed payment of cash allowance equivalent to Leave Travel Concession (LTC) fare to the Central Govt. employees subject to fulfilment of certain conditions. As the same is instead of actual travel, it will be eligible for exemption as per the Income Tax provisions.

On the 29th October 2020, the Government had announced that the said benefit of income-tax exemption will now be available to all the employees. Accordingly, the payment of leave travel allowance, subject to a maximum Rs. 36,000 per person as Deemed LTC per person (Round Trip), shall be allowed as income-tax exemption subject to fulfilment of a certain conditions as may be prescribed.

For the same, the employees will have to spend a sum equal to three times of the value of the deemed LTC fare on purchase of the goods or services (such as the purchase of a electronics, vehicles etc.) which carry a GST rate of not less than at least 12% from GST registered service providers (specified expenditure) through digital mode during the period 12th October 2020 to 31st March 2021 (specified period) and obtain a voucher indicating the GST number and the amount of GST paid.
An employee who spends less than three times of deemed LTC fare on specified expenditure shall be eligible for the reduced amount calculated proportionately. Further, as this exemption is instead of the exemption provided for LTC fare, an employee who has exercised an option to pay the total income tax under concessional tax regime, shall not be entitled to the said exemption.

Illustration-

A deemed LTC Fare is Rs.20,000 per person for 4 family members = Rs. 80,000. The amount to be spent on goods for exemption will be Rs. 80,000 x 3 times = Rs. 2,40,000. However, if the employee spends Rs. 1,80,000, then he shall be entitled to 75% of deemed LTC fare (i.e. Rs. 60,000) and the related income-tax exemption as may be. In case the employee already received Rs. 80,000 from the employer in advance, he has to refund an amount of Rs. 20,000 to the employer as he could spend only up to 75% of the required said amount.

The employer shall allow income-tax exemption subject to fulfilment of the other conditions and after obtaining copies of the invoices of specified expenditure incurred during the specified period.

In conclusion, due to the impact of the COVID-19 pandemic, employees who were unable to utilize their Leave Travel Allowance (LTA) for vacation trips are now eligible for income tax exemption on cash allowance equivalent to Leave Travel Concession (LTC) fare. The government has introduced certain conditions for availing this exemption, including spending a specified amount on goods or services with a minimum GST rate. Employers will need to verify the invoices of the specified expenditure to grant the income tax exemption.

Unlock tax benefits and boost your consumption expenditure. Learn how to avail the income tax exemption on Leave Travel Allowance (LTA) cash allowance. For more, inquire us at info@manishanilgupta.com

Disclaimer:This content is purely for knowledge and educational purposes. It contains only general information and references to legal content. It is not legal advice, and should not be treated as such