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Direct Tax Alert: Finance Ministry extends income-tax exemption of LTC Cash Voucher to non-central government employees

03 November 2020

With travel restrictions and social distancing norms in place, most of the employees would not be in a position to avail Leave Travel Concession (LTC) in the current Block of 2018-21. In order to compensate central government employees and incentivise consumption, the Indian Government1 allowed payment of cash allowance equivalent to LTC fare to Central Government employees, subject to certain conditions. The said cash allowance shall be eligible for income-tax exemption on the lines of existing income-tax exemption available for LTC fare.

Recently, Finance Ministry has issued a Press Release2 extending the similar income-tax exemption for the payment of cash equivalent of LTC fare to the non-central government employees. We, at BDO India, have summarised this Press Release hereunder:

Who will be covered?

All non-central government employees (the employees) will be entitled to claim the benefit, subject to fulfilment of certain conditions

Whether any cap prescribed?

Yes. The payment of cash allowance is subject to maximum of INR 36,000 per person as Deemed LTC fare per person (Round Trip) to non-central government employees.

What are the prescribed conditions?

Following conditions should be satisfied for claiming the exemption:

  1. The employee exercises an option for the deemed LTC fare in lieu of the applicable LTC in the Block year 2018-21.
  2. Condition with respect to spending:
  3. Spending of three times of the value of the deemed LTC fare
  4. Towards purchase of goods/services
  5. Such goods / services should carry GST rate of not less than 12%
  6. They should be purchased from GST registered vendors/service providers
  7. The payment should be made through digital mode
  8. Such expenditure should be paid between 12 October 2020 and 31st of March 2021
  9. Voucher should indicate the GST number and the amount of GST paid

What will happen if the employee spends less than three times of the deemed LTC?

An employee who spends less than three times of the deemed LTC fare 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. This can be understood by following example:

Deemed LTC Fare: INR 20,000 x 4 (being number of people) = INR 80,000

Amount to be spent: INR 80,000 x 3 = INR 240,000

Thus, if an employee spends INR 240,000 or above on specified expenditure, he shall be entitled for full deemed LTC fare and the related income-tax exemption. However, if the employee spends INR 180,000 only, then he shall be entitled for 75% (i.e. INR 60,000) of deemed LTC fare and the related income-tax exemption. In case the employee already received INR 80,000 from employer in advance, he has to refund INR 20,000 to the employer as he could spend only 75% of the required amount.

Where the employee has opted for new tax regime, can he claim this exemption?

No. 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.

BDO Comments:

Due to COVID-19, all businesses have been hit. With festive season around the corner, this should help push the demand and thereby consumption. It is pertinent to note that the press release provides that legislative amendment to the provisions of the Income-tax Act, 1961 for this purpose shall be proposed in due course.

Furthermore, this press release also provides that the clarification issued in connection with the exemption granted to central government employees shall also be applicable to the non-central government employees. Some of the key FAQs that were issued for Central Government employee are:

Query

Answer

Whether the individual employee is required to take leave to avail this LTC-Cash Voucher Scheme? Whether an employee is required to undertake any travel?

An individual need not take leave for this purpose nor undertake any travel. This is a scheme in lieu of LTC travel.

Whether a single bill of purchase of goods or services is to be submitted or multiple bills can be submitted?

Multiple bills are accepted. The purchase should have been done from the date of issue of Office Memorandum (i.e. 12 October 2020) till the end of the current fiscal year. The purchase should carry a GST of 12% and above and payment should have been made to digital mode.

Any limit on number of transactions?

As far as possible, the number of transactions may be limited to a minimum extent to avoid any difficulty / delay.

An employee incurs the expenditure on or before 31 March 2021 on the basis of invoice. Actual product or service received in April 2021

The reimbursement is based on the production of invoice with details of GST. As far as possible, the claim should be made and settled well before 31 March 2021 to avoid any last-minute rush and resultant lapse.

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 the purpose the same is to be mentioned.

For digital payment, an employee uses credit card of his / her spouse or any family members

It is clarified that the invoice which is being submitted for reimbursement under the Scheme should be in the name of the employee who is availing the Scheme.

Is it allowed to do purchase from e-commerce platforms

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

Can services like interior decoration and phone bills be included

Any service which is having a GST component of more than 12% is permissible.


1vide OM No. F. No. 12(2)/2020-EII (A) dated 12th October 2020

2Press Release dated 29 October 2020