Know how you can benefit from the LTC cash voucher scheme

Apart from central government employees, the scheme has now been extended to include employees of state governments, public sector enterprises, banks and even private sector, provided certain conditions are fulfilled.

Business Desk, ETV Bharat: In order to incentivise consumption to beat demand slowdown, the central government earlier this month announced the ‘LTC Cash Voucher Scheme’ in lieu of the LTC travel scheme.

The scheme allowed employees to claim the tax-exempt portion of their Leave Travel Concession/Leave Travel Allowance (LTA/LTC) by purchasing goods and services instead.

Explaining the move, the government had earlier said in a circular: “In view of the Covid-19 pandemic and resultant nationwide lockdown as well as disruption of transport and hospitality sector, as also the need for observing social distancing, a number of employees are not able to avail LTC in the current Block of 2018-21.”

Therefore, it has been provided that employees would be provided a payment of cash allowance equivalent to LTC fare subject to fulfilment of certain conditions.

To know what are the benefits and conditions of this LTC cash voucher scheme and whether you are eligible or not, take a look at its features:

What is the current LTC benefit?

As per income tax provisions, government and certain private sector employees have an LTC/LTA benefit that can be availed once within a block of 4 years. The current block for the same is 2018-2021, i.e. 1 January 2018 to 31 December 2020.

The leave travel allowance covers the travel cost of an employee and his immediate dependents (spouse and children) to anywhere in the country and to his/her hometown during one block period. Depending on the pay grade, employees are reimbursed either air or rail fare.

Along with that, the employees are also eligible for leave encashment of 10 days.

What is now being offered in LTC voucher scheme?

Since chances of travelling are low in the times of an ongoing pandemic, the government has made a provision to offer employees a tax-free cash equivalent of LTC even if they don’t travel.

The condition is that employees will have to spend three times the LTC fare plus full leave encashment on buying goods or services that attract a GST of 12% or more.

It may be noted that in order to avail this scheme, an employee needs to opt for both leave encashment and LTC fare.

Which employees are eligible for this benefit?

Initially, it was announced that the scheme would cover all central government employees only. But later it was extended to non-central government employees as well.

Non-central government employees include employees of state governments, public sector enterprises, banks and even private sector.

So basically, an employee can claim tax-free cash allowance from their employers if an LTC scheme similar to one in the government sector is included in his/her working contract.

How much money can be claimed through LTC cash voucher scheme?

Employees have been divided into three categories for availing the LTC Cash Voucher Scheme with capped pay-outs for each category – 1) employees entitled to business class air travel, 2) employees entitled to economy air travel and 3) employees entitled to rail fare.

For those entitled to business air class travel, a cap of Rs 36,000 per person has been set as deemed LTC fare per person (round trip). Similarly, a maximum of Rs 20,000 per person would be paid for those entitled to economy air travel and Rs 6,000 per person for those entitled to rail fare.

Now suppose if an employee falls under the category of deemed LTC fare of Rs 20,000, and he hasn’t availed his LTC benefit in the current block period, then his family of four is eligible for a tax-free payout of Rs 80,000 (Rs 20,000 x 4).

But for that he needs to spend three times the LTC fare amount, i.e. Rs 2.4 lakh (3 x 80,000) on purchase of goods and services that attract a GST of 12% or more.

Also, say if the employee spends Rs 1.8 lakh only, then he shall be entitled to 75% of deemed LTC fare (i.e. Rs 60,000) and the related income-tax exemption.

So, the tax exemption and the amount of cash equivalent will reduce proportionately if the spent amount is less than three times the actual LTC fare.

What are the conditions of the goods purchased?

As mentioned earlier, the goods and services purchased need to attract more than 12% GST. This will mostly include all white electronics, smartphones, two- and four-wheelers, clothing and also other sin goods.

Also, services like interior decoration can also be included since its cost includes more than 12% GST component.

The purchases have to be made from GST-registered vendors/service providers through digital mode of payment. Employees then need to obtain a voucher from the vendor indicating the GST number and the amount of GST paid.

Multiple bills are also accepted. The purchases should have been done from the date of issue of the office memorandum till the end of the current financial year.

The invoice which would be submitted for reimbursement under the scheme should be in the name of the employee who is availing the scheme.

Procurement from e-commerce platforms is also permissible provided the relevant invoice/ details are submitted.

Whether there is any prescribed format for applying for this scheme?

There is no prescribed format. A simple application conveying the desire of the employee for availing the scheme if advance is required for purpose the same is to be mentioned.