New LTC Scheme Rules, Applicability & Claim in 2021

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.

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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.

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Hi,

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

image001.jpg

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It is extended to Non Government and Private organisations also.

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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).

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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,

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Oops! My bad :slight_smile: @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.
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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.
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Thanks Deepthi, just to clarify the exempt amount is to the extent of GST paid on the goods & services.

Please revert.

Much appreciated!! :blush:

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Hi Avanti,

Thank you! :slight_smile:

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.

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Thanks Ankit…Well explained

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The pandemic situation on account of COVID-19 has imposed severe travel restrictions on people all over India. In the current financial year (2020-21), most employees wouldn’t be able to claim tax benefit on LTA. The Government of India, in a bid to address the issue of tax exemption on LTA and in order to boost consumption, has announced that salaried employees can buy goods and services in lieu of incurring expenses on leave travel and use the expenditure information for availing tax benefit. The Government of India calls this “LTC Cash Voucher Scheme” and has extended the tax benefit from this scheme to private sector employees as well.

The Government vide office memorandum no. F.No. 12(2)/2020—EH(A) dated 12 October 2020 announced the Cash Voucher LTC (Leave Travel Scheme) scheme for Central Government employees. The Central Board of Direct Taxes issued a press release on October 29, 2020, to provide a similar scheme & income-tax exemption to non-central government employees, who were not covered by the 12 October Office Memorandum.

In order to provide the benefits to other employees (i.e. non-Central Government employees) who are not covered by the above mentioned OM, it has been decided to provide similar income-tax exemption for the payment of cash equivalent of LTC fare to the non-Central Government employees also. 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 fulfilment of conditions specified in para 4.

The income-tax exemption to receipt of deemed LTC fare by a non-Central Government employee (‘the employee’) shall be allowed subject to fulfilment of the following conditions:-

(a) The employee exercises an option for the deemed LTC fare in lieu of the applicable LTC in the Block year 2018-21.

(b) The employee spends 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 (‘the specified expenditure’) through digital mode during the period from the 12th of October, 2020 to 31st of March, 2021 (‘specified period’) and obtains a voucher indicating the GST number and the amount of

© An employee who spends less than three times of the deemed LTC fare on specified expenditure during the 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

The DDOs shall allow income-tax exemption subject to fulfilment of the above conditions after obtaining copies of invoices of specified expenditure incurred during the specified period. Further, as this exemption is in lieu of the exemption provided for LTC fare, an employee who has exercised an option to pay income tax under concessional tax regime under section 115BAC of the Income-tax Act, 1961 shall not be entitled for this exemption.

The clarifications issued by the Department of Expenditure, Ministry of Finance for the Central Government employees vide OM F. No 12(2)/2020-EII (A) Dated 20th October, 2020 and subsequent clarification, if any, issued in this regard shall apply mutatis mutandis to non-Central Government employees also subject to fulfilment of conditions specified in the preceding paras.

The legislative amendment to the provisions of the Income-tax Act, 1961 for this purpose shall be proposed in due course.

Example:

Mr. A is entitled to LTA of INR 120,000 and has a family consisting of his spouse and 2 children, eligible for the benefit. To claim the maximum benefit of exemption, Mr A would need to spend three times the amount of the lower of the below –

a. INR 120,000

b. INR 144,000 (INR 36,000 *4)

i.e., he has to spend INR 3,60,000 on purchase of goods/ services that attracts GST of 12% or more.

If he spends only INR 2,40,000/- then the LTA amount of only INR 80,000 (2,40,000/ 3,60,000*1,20,000) would be exempt and the remaining amount of INR 40,000 would be taxable.

If Mr. A who is entitled to LTA of 40,000/- and who is in need of an AC, can buy AC for INR 1,20,000 and claim the tax exemption for INR 40,000/-. In this case, Mr. A would anyways have spent for purchase of AC, but with the introduction of this scheme, he is able to spend and save tax of about INR 12,480/- (assuming he falls in the tax bracket of 30%) on INR 40,000/-

Given that the expenditure could entail exemption, it would encourage employees to spend on the necessary items, thereby giving a boost to consumption, demand and to revenue collection for tax authorities, thereby a win-win situation for all.

Frequently Asked Questions:

Can an employee avail this benefit during the current block (2018-21)?

Yes, they can. However, if an employee has availed (prior to FY 2020-21) the maximum permissible number of tax exemptions (twice) for the block period 2018-21, they cannot avail tax benefit under this scheme. An employee needs to have at least one exemption in the block period (2018-21) to be able to avail tax exemption under the scheme.

What kind of expenditure is eligible for this scheme?

The GST rate on such purchases/services should be 12 per cent or more – typically expenditure on white goods such as refrigerators, washing machines, mobiles, two wheelers/ four wheelers other than electric vehicles, vacuum cleaner, television, water coolers, food grinders and most services would fall under this category as long as the GST on the expenditure is 12% or higher. This means that employees should buy the goods or services only from registered GST vendors.

When should the expenditure be incurred and what should the mode of payment be?

The expenditure should be incurred between 12-Oct-2020 (date of Government of India circular announcing the scheme) and 31-Mar-2021. In other words, the invoice /receipts for the expenditure should contain a date between 12-Oct-2020 and 31-Mar-2021 (both dates included).

The payment should be made by way of a digital payment (credit/debit cards, UPI, Wallets, Net/mobile banking, etc.). Payment by cash cannot be considered as digital payment.

How much should an employee spend on goods/services under this scheme?

The employee should spend a sum which is equal to three times the LTA amount received by the employee. For example, if an employee receives Rs 30,000 as LTA, they should spend Rs 90,000 (Three times Rs 30,000) to avail full benefit under the scheme. In case the employee spends less than thrice the LTA amount, the tax benefit shall be reduced proportionately. For example, if the employee spends only Rs 45,000 (instead of Rs 90,000), the tax benefit will be available only to the extent of 50%, i.e. Rs 15,000 in the example stated above.

What is the maximum benefit available?

The Government of India has notified that irrespective of the actual LTA amount paid to an employee, a maximum of Rs 36,000 per person shall be available as the benefit. The term person refers to a person in the employee’s family as per Section 10(5) of the Income Tax Act which specifies rules related to tax exemption on LTA. For example, if the employee has 4 members in his family, the maximum benefit the employee can avail is Rs 144,000 (Rs 36,000 x 4), in case the actual LTA amount paid is higher than Rs 144,000. In addition, the employee has to spend Rs 4,32,000 (3 times Rs 144,000) in order to avail 100% tax benefit on the expenditure.

Can an employee make multiple purchases of good/services?

Yes, employees can submit multiple invoices/receipts for this scheme. However, the dates of all the invoices/receipts should fall between 12-Oct-2020 and 31-Mar-2021.

Are purchases made on an EMI basis eligible?

Yes, purchases made on an EMI basis can be considered as long the date of purchase is between 12-Oct-2020 and 31-Mar-2021.

Should employees submit invoices/receipts to the employer?

The original GST invoice/bill /receipt or a self-attested copy of the GST invoice/bill/receipt should be submitted by the employee.

The invoice/bill/receipt should be in the name of the employee or their family members.

What about employees who have opted for the Simplified Tax Regime?

Employees who have opted for the Simplified Tax Regime (under Section 115BAC of the Income Tax Act) cannot avail tax benefit under this scheme.

Link to the issued notification - https://www.hinote.in/wp-content/uploads/LTA-Oct2020.pdf

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