Tax Benefit On Govt's LTC Cash Voucher Scheme Not Available Under New Tax Regime

On Thursday, the finance ministry clarified that tax benefit from the recently announced Leave Travel Concession (LTC) cash voucher scheme will not accrue to those who have opted for the new income tax regime.

The ministry's statement on Thursday explained that "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."

Under the new income tax regime (under section 115BAC of the IT Act), introduced for the current financial year, taxpayers can opt for lower tax rates if they forego all exemptions.

To push consumption in the coronavirus-ridden economy, the central government on 12 October announced a scheme for payment of cash allowance equivalent to LTC fare to central government employees subject to fulfilment of certain conditions.

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 utilise due to disruptions caused by COVID-19.

The incentive can be used by employees to buy goods/ services worth 3 times the fare and 1 time the leave encashment before.

Since the cash allowance of LTC fare is in lieu of deemed actual travel, the same would be eligible for income-tax exemption on the lines of existing income-tax exemption available for LTC fare.

On Thursday, the ministry also announced the extension of the scheme to non-central government employees, wherein the payment of cash allowance is subject to a maximum of Rs 36,000 per person, for spending a sum equal to three times of the value of the deemed LTC fare on purchase of goods/services which carry a GST rate of not less than 12 percent from GST registered vendors/service providers through digital mode.