New LTC Scheme Rules, Applicability & Claim in 2021

[avanti]

what is the maximum limit of exemption under the NEW LTC scheme per member of the family?

how can i calculate the exemption if my claim is for 138500/- and yearkt LTA allowance is
38500/-

thanks.

[Ankit]

As per the new [LTC scheme], an employee will be eligible for deemed LTC fare which will be exempt from tax, subject to the following conditions:
(a) The employee should buy goods or services worth three times the deemed LTC fare between 12 October 2020 and 31 March 2021;
(b) The money should be spent on goods or services attracting a GST of 12% or more from a GST-registered vendor;
© The payment should be made through digital mode.

Under the new LTC scheme, the deemed LTC fare can be up to ₹36,000 per person per round-trip.
For example, an employee’s family of four (self, spouse and two children), would get a maximum eligibility of ₹1,44,000 for the purpose of the new LTC scheme. For availing the tax exemption of the full amount of ₹1,44,000, the employee will be required to spend ₹4,32,000 on eligible goods and services.

The government has clarified that the invoice for the goods or services, as per the new LTC scheme, may be in the name of the employee, spouse or any family member in respect of whom the employee is eligible to claim LTC fare. The digital payment for the said expenditure may be made by any such family member.

The government has also clarified that even services like interior decoration and phone bills are accepted provided GST is 12% or more.

As per the guidelines, the LTC lapses if it is not claimed through actual leave and travel and any unutilized LTC needs to be refunded or recovered if already paid in advance. Although actual leave and travel is not required under the new LTC scheme, the condition of lapsed LTC and refund or recovery of LTC poses a practical challenge. The government has made it clear that if three times the deemed LTC fare is not spent, the pro-rata excess amount of deemed LTC fare can’t be paid to the employee and excess advance, if any, must be recovered from the employee

An employee who has already availed exemption by undertaking two journeys in the block of 2018 to 2021 calendar years (for example, one in calendar years 2018 and 2019 each) will not be able to claim the benefit under the new LTC scheme.

[sayeerv]

Hi,

Please confirm if this new LTC scheme pertains only to Government staff and not private companies.

[Ankit]

It is extended to Non Government and Private organisations also.

[Dinesh]

Hi @avanti

The exemption is available only on the actual travel costs i.e., the air, rail or bus fare incurred by the employee. No expenses such as local conveyance, sightseeing, hotel accommodation, food, etc., are eligible for this exemption. The exemption is also limited to LTA provided by the employer.

Also the amount of LTA exemption depends on the LTA component in your compensation package or CTC. You can furnish proofs of travel within the block period and claim up to the amount prescribed in your CTC.

In the example: Though you have spent 138500 you will only be able to claim upto 38500 since that is your LTA limit (upon furnishing necessary and required docs).

[avanti]

Thanks Dinesh. I was actually enquiring about the new LTC scheme about the exemption on goods and services with the example I provided. Not on the travel.

Thanks,

[Dinesh]

Oops! My bad @avanti

Under the new LTC scheme the actual deemed LTC fare can be up to 36,000 per person per round-trip. Considering this, an employee’s family of four (self, spouse and two children), would get a maximum eligibility of 1,44,000 for the purpose of the new LTC scheme (which is 36000*4=1,44,000), but to avail this in full, an employee will be required to spend ₹4,32,000 on eligible goods and services.

Employers may be required to formulate and introduce an LTC scheme, as per the central government guidelines (Click Here)

Note:

• The government has made it clear that if three times the deemed LTC fare is not spent, the pro-rata excess amount of deemed LTC fare can’t be paid to the employee and excess advance, if any, must be recovered from the employee.

[deepthisatish]

Hi Avanti,

In addition to what Ankit & Dinesh have articulately explained,

In your case, by considering your total LTA component in your salary as Rs.38,500 in FY 2020-21, please note the following under New LTC Scheme rules:

1. Maximum LTC claim per person is capped at Rs.36,000.
2. This is not applicable for employees who have opted for New simplified tax regime at the beginning of the year.
3. Assuming you will fall in the 20% bracket after standard deduction - You can save tax up to Rs.7,200 by availing the LTC scheme applicability. (Per person)
4. You will have to have GST bills for goods &/or services in your name or any of your family member’s names, where GST is charged 12% or more. Value being 3 times of Rs.36,000 (i.e Rs.36,000*3 times = Rs.1,08,000) (Per member of the family) to take benefit of the said scheme and considering it as the deemed fare.
5. The transaction dates are from 12th Oct 2020 to 31st March 2021 only.
6. The payment has/had to be made only in digital mode (Not in cash)
7. Few of the common examples of eligible consumer GST transactions: Broadband Bill, Telephone Bill, Mobile recharge, All Parlour services, Any Insurance premium (Car, 2 wheeler, Life Insurane, Health), DTH recharges, Vehicle Service, Mobile device services, Any capital asset purchases and/or servicing (Washing machine, Refridgerator, Water purifier, AC, Cars, 2 wheeler, Mobile phones, furniture, Laptops and many more). Please verify GST percentage before purchasing / claiming
8. Quick Tip: Check your Credit card & bank statements for digging out any eligible purchases.
9. Simple math is - The tax saving out of this scheme is the same amount that you would have paid as GST on all the eligible transactions.
10. Note the current LTA block is 2018 to 2021. (If you have already availed LTA twice in the block, then you are not eligible.) One must keep in mind, that they can also carry forward 1 trip to the next LTA block.

[avanti]

Thanks Deepthi, just to clarify the exempt amount is to the extent of GST paid on the goods & services.

Please revert.

Much appreciated!!

[deepthisatish]

Hi Avanti,

Thank you!

No. There is no direct relation to GST amount on eligible services to the exempt amount or to tax savings.

I just mentioned the logic behind the government’s intention of incentivising consumption as a contrast to promotion of savings.

[I_am_the_Cosmos]

Thanks Ankit…Well explained