In this article, we shall take a look at the newly introduced rules for Leave Travel Allowance and the benefits thereof.
We all love holidays, especially when someone else is paying. However, the Covid pandemic has made travelling and holidays extremely risky and difficult. In this context, The government recently came out with detailed tax rules on the tax treatment rules for Leave Travel Concession, a lucrative part of an employee’s salary.
The government recently came out with detailed rules on the tax treatment of the LTC allowance considering the pandemic. In this post, we present to you tax alternatives and how you can optimise your LTC tax exemption allowance in this festive season.
What Is Leave Travel Concession or Leave Travel Allowance?
In income tax terms, leave travel Concession is an exemption that employees can claim for expenses incurred for travelling when on leave anywhere in the country. This travel expenditure is often reimbursed by the employer. It is in addition to the salary and encourages hardworking employees to rejuvenate and take time off work to travel.
LTC in Income Tax
Leave Fare Concession Income Tax is a provision in many countries’ income tax laws, designed to provide relief to employees for travel expenses. Under this scheme, employees can claim a deduction for travel expenses incurred during a vacation within their country. Here’s a brief overview:
- Eligibility: Generally available to salaried employees.
- Frequency: Often, claims can be made twice in a block of four years.
- Travel Mode: Expense claims may vary based on the mode of travel chosen.
- Destination Limit: Only domestic travel expenses are allowed.
- Proof: Employees must furnish travel bills and tickets.
- Exclusions: Only travel costs are covered; other expenses like food and accommodation aren’t included.
- Tax Benefit: The amount claimed under LTC is exempted from taxable income, up to certain limits.
Always consult your country’s tax guidelines to understand LTC specifications and regulations.
- As per the Income Tax Act, only expenses such as ticket cost of employee and his family would be covered under the exemption.
- Food expenses, any expenses on lodging, shopping and sightseeing would be excluded from such calculations.
- These travel expenses of the employer along with the family is allowable to any place in India, twice in four calendar years.
- The current block for the income tax exemption is from 2018 to 2021.
- Who is family – As per the income tax act this reimbursement can be claimed for LTA, for which the family includes the employees’ spouse and two children, dependent parents and dependent brothers and sisters.
Covid Related Amendments In Leave Travel Concession
Because of the Covid pandemic, travelling has been made next to impossible. To help employees claim this beneficial allowance, the finance minister recently announced tax rules for the leave travel concession exemption scheme.
Under this scheme, employees can claim a travel allowance even without travelling to any place. The government would provide the LTC amount as a cash voucher, with subsequent deduction subject to fulfilling conditions specified.
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The Rationale Behind The New Scheme Of Exemption
The government intends to increase consumer expenditure by way of this amendment. In a normal year, people would spend on tickets, hotel, sightseeing and local commodities. However, with the lockdown in place, businesses are starved of cash. By encouraging people to buy more, to avail the exemption, more funds would flow to businesses.
Conditions For Claiming The Benefit Of Leave Travel Concession Under The Cash Voucher Scheme
An employee needs to satisfy the following conditions for availing the encashment of travel fare amount of the leave travel concession –
- Buy goods and services worth three times the tax-exempt amount before 31 March 2021
- This amount has to be spent on buying items attracting GST of 12% or more from a GST registered vendor or purchase in digital mode. This includes items such as electronics, washing machines, refrigerators, laptops, vehicles, luxury items such as perfumes etc.
- Compulsorily produce GST invoice.
Which Categories Of Employees Are Eligible To Claim This Modified Leave Travel Exemption?
- This scheme is available to all categories of employees. Provided that, they have the option of availing Leave Travel Allowance.
- Thus, all private-sector employees, employees of Public Sector Undertakings, public banks, state government and central government are eligible to take the exemption.
- Under the scheme, employees are categorised in three LTC slabs – Who travelling train Rs 6,000 per person, who air travel in economy Rs 20,000 per person and who air travel in business class Rs 36,000 per person.
How Much Claim Is Possible Under LTC exemption in Income tax?
Just because the employer would be reimbursing the travel expense, it does not mean that there is no upper limit. The amount incurred on travel expenses is usually specified in the CTC. Further, the travel fare exemption is based on actual expenses incurred.
For example, for air travel, the reimbursed is often the most economical route or the shortest route.
Benefits of the LTC Cash Voucher scheme
- The scheme only considers items attracting GST of 12% or more. This would boost the demand for many electronics and other expensive items
- Employees spending the required amount (determined as per their LTC) can reduce their overall cost for the products. Thus, the tax deduction availability is the reason behind the reduced price of a new phone or laptop.
- Taxpayers would find it advantageous to pay the full GST and take a receipt, as opposed to evading GST by taking a product without a bill
- Interest-free advance for the festival season
- In a similar vein, the government has also announced an interest-free advance of ₹10,000 to each government employee. This advance will come in the form of a pre-loaded Rupay card. This card is usable to make purchases but only till the cut off date – 31 March 2021.
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