The central government on Thursday announced extension of the income-tax exemption for payment of deemed LTC fare for non-central government employees also, in order to provide the benefits to other employees who were not covered under the LTC Cash Voucher Scheme.
In a press statement, Central Board of Direct Taxes (CBDT) said, "It has been decided to provide income-tax exemption for the payment of cash equivalent of LTC fare to the non-Central Government employees as well similar to what has been provided to the Central Government employees through order dated 12 October 2020."
Accordingly, the payment of cash allowance, subject to maximum of Rs 36,000 per person as deemed LTC fare per person (Round Trip) to non-central government employees, shall be allowed income-tax exemption subject to fulfillment of specified conditions.
On October 12, Finance Minister Nirmala Sitharaman announced LTC scheme offering cash vouchers to central government employees which could be used to buy non-food GST-rated items. LTC is an allowance given to central government employees to facilitate home travel as well as travel to different parts of the country. The decision has been taken in wake of coronavirus outbreak as employees will not be able to avail the LTC in the 2018-21 year block due to the ongoing pandemic.
Explaining the conditions, the CBDT said that the income-tax exemption to receipt of deemed LTC fare by a non-central government employees shall be allowed if the employee exercises an option for the deemed LTC fare in lieu of the applicable LTC in the Block year 2018-21. Also, the employee has to spend a sum equals to three times of the value of the deemed LTC fare on purchase of goods/services which carry a GST rate of not less than 12% from GST registered vendors / service providers through digital mode during the period from 12th October, 2020 to 31st March, 2021 and obtains a voucher indicating the GST number and the amount of GST paid.
CBDT further explained that an employee who spends less than three times of the deemed LTC fare on above specified expenditure during the above specified period 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.
For example, if the Deemed LTC Fare is Rs 20,000 x 4 = Rs 80,000. Then the non-central government employee would have to spend Rs 80,000 x 3 = Rs 2,40,000. Thus, if an employee spends Rs 2,40,000 or above on specified expenditure, he/she shall be entitled for full deemed LTC fare and the related income-tax exemption. However, if the employee spends Rs 1,80,000 only, then they shall be entitled for 75% (i.e., Rs 60,000) of deemed LTC fare and the related income-tax exemption. In case the employee has already received Rs 80,000 in advance from the employer, then he would have to refund Rs 20,000 to the employer as he could spend only 75% of the required amount.
Under this LTC Cash Voucher Scheme, government employees can opt to receive full cash payment on leave encashment plus three times the ticket fare, to buy items which attract a GST of 12 per cent or more. These purchases have to be done in digital mode and a GST invoice will have to be produced to avail the benefit.
Also Read: What is LTC cash voucher scheme?