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Direct Tax Alert - CBDT notifies Rules for cash allowance in lieu of LTC w.e.f. April 1, 2021

12 May 2021


The Central Board of Direct Taxes (CBDT) had earlier1 announced an exemption for Leave Travel Concession (LTC) cash voucher scheme i.e., cash allowance in lieu of LTC fare during the tax year 2020-21. Further, the Finance Act, 2021 amended Section 10(5) of the Income-tax Act, 1961 (IT Act) to provide an exemption in respect of cash allowance received in lieu of LTC. Recently, the CBDT issued a notification2 amending Rule 2B of the Income-tax Rules, 1962 (IT Rules) to provide the mechanism of computing exemption for cash allowance in lieu of LTC.

We, at BDO in India, have analysed and summarised the said notification and provided our comments hereunder:

Exemption for cash allowance in lieu of LTC

As per the IT Rules3, if an employee avails any cash allowance from his employer in lieu of any travel concession or assistance for tax year 2020-21, he shall be eligible to claim an exemption for an amount equal to lower of the below:

  • INR 36,000 per person for the employee and the member of his family; or
  • 1/3rd of the specified expenditure incurred by an employee or a member of his family during the specified period.

However, the exemption is available subject to fulfilment of below conditions:

  • The employee exercises an option to claim such exemption in respect of one unutilised journey during the block of calendar years i.e. 2018 to 2021.
  • Expenditure as well as payment thereon should be made from 12 October 2020 to March 31, 2021.
  • Expenditure is incurred by the employee or his family members.
  • Expenditure is made on goods or services which are liable to Goods and Services Tax (GST) at an aggregate rate of 12% or above.
  • Such goods or services are purchased/procured from GST-registered vendors or service providers.
  • A tax invoice is to be obtained by the employee in the name of self or any member of his family.
  • Payment for such expenditure is made through specified digital mode4 i.e., by way of an account payee cheque/bank draft, credit/debit card, etc.

BDO Comments

The exemption mechanism prescribed by the CBDT could be understood with the following illustration:


Remarks / amounts

Cash allowance in lieu of LTC received during tax year 2020-21

INR 2,00,000

Actual expenditure incurred by the employee and his family members on 23 December 2020

(Goods of INR 80,000 each purchased by employee and two family members)

INR 2,40,000

Mode of payment


GST rate of actual expenditure incurred


GST details of Vendor

Registered under GST Act and tax invoice provided

No. of unutilised journeys eligible for LTC during the block of 2018-21


Exemption amount is lower of below:


  • INR 36,000 per person

INR 1,08,000

  • 1/3rd of actual expenditure incurred

INR 80,000

Total exemption as per the said rules

INR 80,000

The exemption was initially introduced for Central Government employees but was later opened for non-Central Government employees as well. With the restriction in travel within India for individuals owing to the current COVID-19 environment, this was a welcome move to provide some relaxation to salaried taxpayers. However, individuals opting for the concessional tax regime under Section 115BAC of the IT Act shall not be eligible to claim such exemption.

The CBDT had also released certain FAQs relating to availing of such exemption. It has also been clarified in the said notification that these set of FAQs apply mutatis mutandis to the new IT Rules.

1BDO India alert dated November 03, 2020

2Notification No. 50/2021[F. No.370142/14/2021-TPL]/G.S.R. 320(E) dated May 05, 2021

3New sub-rule (1A) to Rule 2B of IT Rules

4Rule 6ABBA of IT Rules