The income tax exemption provided as part of the LTC cash voucher scheme will now also be available to employees of the state government, state-run units and private sector. Previously, the centre on October 12 announced payment of allowance as cash vouchers in lieu of LTC fare to just central government employees subject to fulfillment of some of the conditions.
Also, employees need to opt for an option in respect of the deemed LTC fare in place of the applicable LTC in the Block year 2018-21.
How private sector employees can avail tax benefit under LTC cash voucher scheme?
First and foremost, if you have opted for the simplified tax regime, you will not be able to avail the income tax exemption on LTC cash voucher scheme. And if this tax benefit is still available to you, you can claim it, by spending three times the eligible amount on purchase of goods or services that attract GST of at least 12% from GST registered outlets or service providers via online means only.
In a case when the employee spends a sum which is less than three times of the estimated LTC fare under the LTC cash voucher scheme, he or she shall not be eligible to receive full amount of estimated LTC fare and the associated exemption on income tax. Further, the amount in respect of both the variables shall be reduced in similar proportion.
CBDT explained the case saying that if the deemed LTC fare is Rs. 80000 (Rs. 20000*40) then the amount to be spent under the scheme is Rs. 2.4 lakhs. And if the employee spends Rs. 2.4 lakh or more on expenditure given out as per the provision then he or she shall be eligible to receive full deemed LTC fare together with associated income tax exemption.
And say if the employee spends just Rs. 1.8 lakhs as against Rs. 2.4 lakh that were required to be spent on the basis of the deemed LTC fare of Rs. 80000, he or she shall be eligible to receive just 75% of the deemed LTC fare i.e. 75% of Rs. 80000= Rs. 60000 and the related exemption on income tax.
Further in a case if the employee has already got Rs. 80000 from his or her employer in advance then he or she needs to make a refund of Rs. 20000 to the employer as he or she could spend just 75% of the requisite amount.
Timeline for making the expenditure to be eligible for receiving full deemed LTC fare
The expenditure to get tax exemption under LTC cash voucher scheme can be made between October 12, 2020 and March 31, 2021. Further for making the claim, employees need to produce valid vouchers showing the GST number and the GST amount paid.
Maximum deemed LTC fare of Rs. 36000 per person will provide for a tax benefit of appx Rs. 61556
The upper limit in respect of deemed LTC fare is Rs. 36000 per person and this will bring about the highest deduction of Rs. 1,44,000 for a person with a family comprising 4 members, said Sraswathi Kasturirangan, Partner, Deloitte. And this could mean a tax benefit of approximately Rs. 61556 at the highest marginal rate of 42.74 percent.