This scheme is an alternative to the Leave Travel Concession Tax Benefit [ LTC / LTA] that is currently available in income tax . LTC is the amount paid by the employer to the employees to travel in India. Tax benefits can be claimed twice in a block of four year.
The current block is 2018-21. Due to the novel coronavirus pandemic, employees are unable to travel. Looking at this practical challenge, the government has given the option to claim the tax benefit on certain expenditures against the benefit of LTA / LTC. Therefore, even if you have not incurred the expenditure on travelling, certain specified expenditures will help you to save the tax.
So, employees can avail the tax exempt benefit on the LTA, without the need to travel, if the amount is spent as per specified conditions below:
Under the LTC rules, employees get LTC tax benefits for two journeys in a block of four years. The employer reimburses the fare amount via air or rail fare, depending on scale/entitlement.
Out of this, the air/rail fare is exempted from the tax whereas the leave encashment portion is taxable in the hands of an employee.
Scheme is open to the private sector wherever the employers currently offer LTC. It is also open to PSUs, PSBs, Central Government and state government employees.
This benefit is available till 31 March , 2021.
The amount of tax exemption under LTC depends on the component of LTA in the Salary and amount of actual expenditure.
Currently, the goods and services are taxed under Goods and Services Tax (GST) at different rates.
Apart from goods, an individual employee can also spend money on services as well to avail the benefit of tax-exempt LTC/LTC like interior design services etc.
Leave Travel Allowance / Concession is a tax-free allowance offered to employees by employers as a part of their salary component. Under this allowance, the costs incurred by the employee on taking a trip for leisure purposes are allowed as a tax-free expense.
LTC exemption can be claimed in the income tax return of the employee under exempt allowances.
This scheme is introduced by the FM on 12.10.2020 where the specified expenditures can be claimed as a tax saving tool. Employees need to purchase the items having the GST rate of 12% and more and payment must be made via Digital Mode. Expenses must be three times of the amount of LTA so as to claim the maximum tax benefit.
Apart from this, to boost the demand in the economy, FM Nirmala Sitharaman announced that interest free advance of Rs. 10,000/- to be given to the Government Employees in the form of a prepaid Rupay card. Additionally, central government employees will be entitled for the payment of leave encashment and fare payment depending upon the class of entitlement. Employees who are getting the leave encashment and fare payment needs to spend the money to buy Goods / Services worth 3 times of the Fare and equal to the leave encashment amount. There are certain other conditions also like amount to be spent on goods attracting the GST rate of 12% or more from GST Registered vendors through digital mode.
