Employee LTC Cash Voucher Scheme and How to Claim It?

In the current financial year, the Covid-19 has made all of us to stay at home and hence few people could go on vacation or travel, unlike every year. Many employees have leave travel concession (LTC) included in their CTC package. This component is tax-free to the extent of actual expenses on travel as per section 10(5) of the Income-tax Act. However, this year because of travel restrictions, this tax exemption in respect of the LTC Block of 2018 – 21 was potentially going to waste. However, the Central Government announced a substitute for such travel requirements in the form of an LTC Cash Voucher Scheme. This scheme was extended to the private sector in December – 2020.

What is Leave Travel Concession (LTC)?
Many employees get LTC as part of their salary package. This is meant for travel in India for the employee and his family. This can be claimed once in an LTC Block. The tax exemption is provided with respect to the travel expenses of all his family members for travel anywhere in India. The exemption is provided only on the production of valid proof of travel. The current LTC Block is 2018-21.

What is LTC Cash Voucher Scheme?
In October 2020, the Government announced that for claiming the LTC exemption you need not travel, and instead you need to spend 3 times of that money on GST liable consumer goods/services to get the tax exemption of the LTC amount. This scheme was originally launched for Central Government employees but afterward is extended to the private sector too. In Budget 2021 this scheme is announced and formalized too.

As per this scheme, you do not need to travel for claiming the tax exemption. You can purchase goods or services which are GST liable and pay for them through banking channels and claim the tax exemption for the assessment year 2021-22. The salient features of the scheme are as follows:

  1.  The employee has to exercise this option of the LTC Cash voucher scheme for LTC Block starting as of January 2018 and ending in December – 21. 
  2. The employee must incur expenditure on goods and services which are liable to GST at 12% or more. Such goods or services must be purchased from GST registered vendors or service providers.
  3. The employee is expected to purchase such goods and services in the period from 12/10/2020 to 31/03/2021.
  4. The maximum limit for tax exemption is ₹36,000/- per person in the employee’s family or one-third of the amount spent on such GST liable goods and services whichever is lesser.
  5. The payment for such goods and services should be made only through banking channels like cheque/DD/Credit or Debit cards or digital modes like UPI. Cash payments are not allowed.
  6. The amount for tax exemption can not exceed the above said monetary limits in any case.

Illustration:
Shri Sunil is having an LTC Package of ₹1,50,000/- and a family of 4 persons. He could not travel this year. So how does this scheme help him?
Shri Sunil is eligible for maximum claim of ₹ 1,44,000/- (₹36,000 x 4). His total package is ₹1,50,000/- however, he can claim tax exemption only on ₹ 1,44,000/-. For claiming this, he has to spend ₹ 4,32,000/- and he should spend this money on the goods which are chargeable to GST at the rate of 12% or more and he should purchase these goods from GST registered vendors. Even though he spends more than this amounts his tax exemption shall not exceed ₹1,44,000/-. However, if he spends lesser than ₹ 4,32,000/-, the tax exemption shall be 1/3rd of the amount spent by him. His tax exemption is summarized below:

Maximum Eligible Amount Amount Spent on GST goods and services Actual tax exemption claim
Scenario 1 1,44,000/- 5,00,000/- 1,44,000/- 
Scenario 2 1,44,000/- 4,32,000/- 1,44,000/-
Scenario 3 1,44,000/- 3,90,000/- 1,30,000/-
Scenario 4 1,44,000/-  3,00,000/- 1,00,000/-