Before COVID-19 pandemic, many employees planned trips with the benefit of Leave Travel Allowance (LTA). But now due to Covid effect, employees who had leave travel concession as a component in their salary structure may not be able to avail the tax exemption in the near future.
Thus, to give benefit to such employees and with a view to boost consumption expenditure, on 12th October 2020 gov. allowed payment of cash allowance equivalent to Leave Travel Concession (LTC) fare to Central gov. employees subject to fulfillment of certain conditions. As the same is in lieu of actual travel, same shall be eligible for exemption as per the Income Tax provisions.
On 29th Oct 2020 gov. announced that the said benefit of income-tax exemption will now be available to all employees. Accordingly, the payment of leave travel travel allowance, subject to maximum of Rs 36,000 per person as Deemed LTC fare per person (Round Trip), shall be allowed income-tax exemption subject to fulfillment of certain conditions.
For the same, the employee will have to spend a sum equal to 3 times of the value of the deemed LTC fare on purchase of goods / services (such as purchase of a vehicle, electronics etc) which carry a GST rate of not less than 12% from GST registered vendors / service providers (‘the specified expenditure’) through digital mode during the period from the 12th of October, 2020 to 31st of March, 2021 (‘specified period’) and obtain a voucher indicating the GST number and the amount of GST paid.
An employee who spends less than 3 times of the deemed LTC fare on specified expenditure shall be eligible for reduced amount calculated proportionately. 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, shall not be entitled for this exemption.
Example-A Deemed LTC Fare : Rs.20,000 per person x 4 family members = Rs. 80,000. Amount to be spent on goods for exemption will be : Rs. 80,000 x 3 = Rs. 2,40,000. However, if the employee spends Rs.1,80,000 only, then he shall be entitled for 75% (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 the employer in advance, he has to refund Rs. 20,000 to the employer as he could spend only 75% of the required amount.
The employer shall allow income-tax exemption subject to fulfilment of the other conditions and after obtaining copies of invoices of specified expenditure incurred during the specified period.