Opportunity to claim LTC Concession

Greetings,

 

To overcome the low spending due to Covid and kickstart the economy, Finance Minister had announced several measures to boost the ailing economy.

Among them, the salaried class would be most happy with the LTC CASH VOUCHER SCHEME. Because this scheme is not restricted to the Central Govt Employees, but even the Private sector employees too are eligible to claim the leave travel allowance.

 

Employees can claim tax exemption on spending the LTC amount, by satisfying certain other conditions, without the need for actual travel.

The exemption is available to both government and non-government employees.

Instead of incurring expense on travel, the employee can now furnish proof for purchases made / services availed and avail the tax exemption.

 

The tax exemption will be restricted to the deemed LTC fare of up to maximum of Rs 36,000 per person for a round trip

The employee will be required to buy goods/avail services worth 3 times the deemed LTC concession fare and worth 1 time the value of leave encashment.

If the amount spent is short of the requirement, then the exemption would be allowed proportionately.

 

So, for example , if the deemed LTC Fare is Rs 80,000 (Rs 20,000 x 4),

then the amount to be spent under the scheme is Rs 2,40,000.

 

The scheme was introduced to make use of the unused LTC for the current block of 2018-21 that would otherwise lapse since employees could not fully utilize it due to disruptions caused by COVID-19.

 

 

What is LTC or Leave Travel Concession?

LTC or leave travel concession is an allowance available to the employees. This allowance is applicable for travelling to your declared hometown along with your eligible family members.

 

 

Some clarifications :

-The goods/services bought should be those attracting GST of 12% or more and should be bought from GST registered vendors/service providers.

-Only digital transactions are allowed and GST invoice is to be produced. -Expenditure should be incurred between 12 October 2020 to 31 March 2021 –

-Purchase of goods or services on EMI is also permissible under the scheme, provided they have been bought after 12 October and have a GST invoice.

 

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

 

Some more Clarifications :

 

1.    
I availed home LTC in 2019. What is my eligibility position for the LTC cash voucher scheme?

This scheme is for the LTC block of 2018-21. Normally, a block contains two LTC fare (home town and anywhere in India). If one has been availed and the other remaining, the same can be utilized for this purpose. Any unutilized LTC of the block of 2018-21 is eligible.

 

2.
Whether any advance will be given like LTC advance?
Yes, an amount up to 100% of leave encashment and 50% of the value of deemed fare may be paid as advance into the bank account of the employee.

 

3.
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 the OM ie 12.10.2020 till the end of the current Financial Year.

 

FOR ME THE BIGGEST POINT IS THIS....

Life insurance and Health Insurance premium eligible for reimbursement under LTC cash voucher scheme

Lets see this with an example:
Mr A is an employee with 4 eligible family members. Let us assume he is entitled to leave a travel allowance of Rs. 156,000 from the employer-based on his compensation structure.

He can avail the LTC exemption only for the lower of Rs. 144,000 (Rs. 36,000 deemed fare per person for 4 members) and Rs. 156,000 (actual entitlement).

For claiming this exemption, he will have to invest in the specified expenditure 3 times the amount of 144,000, i.e, Rs. 4,32,000. The differential of Rs. 12,000 (156,000-144,000) would be taxable. If the employee spends less, then the entitlement/benefit shall also be reduced proportionately.

 

Continuing the above example: If he incurs expenditure of only Rs. 240,000, then the exemption will be restricted to Rs. 80,000 (i.e 2,40,000/4,32,000*144,000). The balance amount of Rs. 76,000 (Rs. 156,000-80,000) would be taxable.

 

Since the movement of individuals have been severely restricted in the lockdown situations, this is a welcome initiative by the government to boost consumer the demand which would then lead to increased spending and revive the

Indian economy.

 

 Note :
Payment of premium for new insurance policies purchased between 12 October 2020 and 31 March 2021, is eligible for the benefit under the scheme. This is not applicable to existing insurance policies.

 

Do consult your Tax Advisor / Tax Expert before taking any decision.

 

Regards,

Srikanth Matrubai,

Wealth Architect,

Author : Don’t Retire Rich