Finance Ministry extends IT exemption under LTC cash voucher scheme to non-central government employees

Government has decided to extend the income tax exemption available under leave travel concession (LTC) cash voucher scheme to non-central government employees also to boost consumer spending. Non-central government employees will include employees of state governments, public sector enterprises, banks and the private sector.

The move will allow non-government employees also to claim tax-free cash allowance from their employers if an LTC scheme similar to one in the government sector is included in their working contract.

"In order to provide the benefits to other employees (i.e. non-central government employees), it has been decided to provide a similar income-tax exemption for the payment of cash equivalent of LTC fare to the non-central Government employees also," the finance ministry said in a statement.

Accordingly, the payment of cash allowance, subject to a 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 Ministry of Finance says, "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:-

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

1) The employee has to spend or buy goods or services which equals to three times of the value of the deemed LTC fare and one time the leave encashment amount for the purpose of purchasing non-food items i.e. white goods.

2) The money spent on goods or services should carry a GST rate of not less than 12 per cent from GST registered vendors/service providers through digital mode during the period from the of October 12, 2020, to March 31, 2021, and obtains a voucher indicating the GST number and the amount of GST paid.

3) 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 the full amount of deemed LTC fare and the related income-tax exemption and the amount of both shall be reduced proportionately as explained in Example-A below.

4) 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 to 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 October 20, 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-A

Deemed LTC Fare : Rs 20,000 x 4 = Rs 80,000

Amount to be spent : Rs 80,000 x 3 = Rs 2,40,000

Which means, if an employee spends Rs 2,40,000 or above on specified expenditure, he shall be entitled to full deemed LTC fare and the related income-tax exemption. However, if the employee spends Rs 1,80,000 only, then he shall be entitled to 75 per cent (i.e. Rs 60,000) of deemed LTC fare and the related income-tax exemption. In case the employee already received Rs 80,000 from an employer in advance, he has to refund Rs 20,000 to the employer as he could spend only 75 per cent of the required amount. (All details as per an official statement by Ministry of Finance)

Earlier on October 12, 2020, the government announced giving out cash vouchers to central government employees this year in lieu LTC fare which could be spent only on buying non-food items with GST rate of 12 per cent or above.