The center recently introduced the LTC cash voucher scheme for central government and public sector employees. An employee is eligible for LTC and leaves an encashment of 10 days for travel to home town or any other destination twice in a block of four years. The cost of the ticket is exempt while vacation expenses are taxable. As travel is restricted in the wake of the Coronavirus pandemic, central government employees now have the option to take advantage of the cash equivalent of the LTC fare and leave encashment. As travel is restricted in the wake of the Coronavirus pandemic, central government employees now have the option to take advantage of the cash equivalent entitled LTC fare and leave encashment.
Employees are now eligible to purchase goods and services in lieu of the tax-exempt portion of the LTA or LTC.
But to avail of these schemes, the employee must spend an amount equal to the value of the vacation outlay and an amount three times the monetary equivalent of the rate considered, when buying items or using services. Spending must be made through digital mode before March 31 on goods and services that attract a GST of 12% or more, and the employee must obtain a voucher indicating the GST number and the amount of GST paid.
The deemed LTC fare for this purpose is as follows:
1) Employees who are entitled to business class of airfare: ₹36,000 (per person Round Trip)
2) Employees who are entitled to an economy class of airfare: ₹20,000 (per person Round Trip)
3) Employees who are entitled to Rail of any class: ₹6,000 (per person Round Trip)
Government LTC is completely different from LTA in the corporate sector
"The government LTC is completely different from the Leave travel subsidy in the corporate sector. A person claiming LTC is not eligible unless he actually travels; if he fails to travel, the amount is deducted from his salary and he may be liable for disciplinary action". He does not have the option of keeping the money and paying income tax," the finance ministry said in a note.
Under the government system, the employee had only two options: 1) Travel and spend (and be covered by emergency expenses such as hotel, food, etc.) or 2) Forgo the entitlement if not claimed within the date. Now a third option has been given, which is "spend on something other than travel." The Finance Ministry statement stated that travel carries serious perceived health risks.
Should you opt for it?
This scheme is completely optional and employees can choose to take advantage of the scheme or opt for regular LTC in later years in the group. The current block is between 2018-2021. It should be noted that to benefit from this package, the employee must choose both the leave encashment and LTC fare.
"Those employees who were not planning to avail or were unable to take advantage of LTC due to fear of the pandemic have the opportunity to claim LTC under the new scheme, which would expire on March 31, 2021," said Nand Kishore, partner, DSK Legal.
"The benefit is only to the extent of reimbursement in cash of the maximum amount of LTC for which he is eligible. In other words, the goods or services which the employee chooses to use to claim benefits will be available at a discount due to that payment," Divakar Vijayasarathy, Founder and Managing Partner, DVS Advisors LLP.
"Tax exemption, TDS is not required to be deducted when paying a significant LTD fare," said Angad Sandhu, partner - PSL Advocates & Solicitors.
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