Under this scheme, the employee is required to purchase goods or services worth three times the LTC benefit claimed. These goods and services should be purchased between 12 October 2020 and 31 March 2021. The purchase should be made digitally, and on which goods and services tax (GST) of 12% or more is applicable.
There are more conditions to it. According to government guidelines, employees will be able to claim a tax deduction equivalent to the LTC allowance up to ₹36,000 per person. So, for example, in the case a family of four eligible members, ₹1,44,000 in total can be claimed, provided the employees spend three times the LTC amount claimed as deduction on buying goods and services. To avail the tax benefit under the scheme, the employee is required to submit the bills with the employer.
Assuming a person can claim ₹1,44,000 as LTC and falls in the highest tax bracket of 42.74% (30% slab rate, including 37% surcharge and 4% cess on income more than ₹5 crore), he would save ₹61,551 in tax. However, the person will have to spend ₹1,44,000X3 or ₹4,32,000, which is seven times the tax saved.
Option of LTA carry forward
The tax benefit on LTA can be claimed on two journeys in a block of four years. The current block is 2018-21. There is an option to carry forward one out of the two journeys in the next LTA block period. “Such LTA for that one journey can be carried forward to the next block period of 2022-25. Consequently, LTA exemption that can be claimed in the block of 2022-25 would be three journeys in total. However, with respect to the carry over LTA, the same has to be claimed in the first year of the next block,” said Suresh Surana, founder, RSM India.
Govt sector and private sector employees
One needs to understand the difference between the salary structures of government and private sector employees to understand the benefits under the scheme. “Private sector employees, generally, get covered under the ‘cost to company’ concept and the government employees get the benefit of LTA (leave travel allowance) only if they utilize it. Under the LTC cash voucher scheme, government employees get the LTC cash voucher in addition to their salary; whereas, for private sector employees, the benefit is limited to tax exemption of a part of their salary,” said Prakash Hegde, a Bengaluru-based chartered accountant.
Under the LTC cash voucher scheme, travel expenses up to ₹36,000 per person can be claimed as deduction. There are two more slab rates of ₹20,000 and ₹6,000 depending on the employees’ entitlement in case of government staff. “However, for private sector employees, there is only one cap of ₹36,000 per person,” said Hegde.
“Generally, there is no monetary capping on the LTA amount in case of private sector employees but is limited to actual travel expenses within India. There is a limit of two in case of children but travel expenses of dependent parents and siblings can be claimed under LTA. One should remember that only travel fare can be claimed, and expenses related to accommodation and other things can’t be claimed under LTA,” said Hegde.
lta cash voucher or carry forward?
Although vaccination for covid has started, it will take some time for the entire population to be vaccinated and we are seeing covid cases spiking. Therefore, those who are not planning to travel in this year can opt for this scheme, believe experts.
“If an employee has not availed even a single journey in the block of 2018-21, and does not wish to travel in 2022, then opting for LTC cash voucher scheme would be more beneficial. One must also note that under the LTC cash scheme, a person has to spend three times the equivalent money on goods/services attracting 12% or more GST before 31 March 2021. If a person spends less than three times of his/her LTA eligibility, he would be entitled to proportionately less exemption. Therefore, if one has planned expenses as such, then he may opt for the cash voucher scheme,” said Neha Malhotra, director, Nangia Andersen LLP.
“It entirely depends on the employee’s individual choice and requirement. If he/she has purchased or is planning to purchase any goods or services with a GST rate of 12% or more and is not planning to go on a leave travel, it makes sense for him/her to opt for the LTC cash voucher scheme.,” said Hegde.
Therefore, if you have already spent or are planning to spend the amount eligible under the LTA scheme, you may opt for it. If you plan to carry forward the LTA to the next block remember you can claim it in the first year only.