Income-tax Exemption for payment of deemed LTC fare

In view of the COVID-19 pandemic and resultant nationwide lockdown as well as disruption of transport and hospitality sector, as also the need for observing social distancing, a number of employees are not able to avail of Leave Travel Concession (LTC) in the current Block of 2018-21.

With a view to compensate Central Government employees and incentivise consumption, thereby giving a boost to consumption expenditure, the Government of India allowed payment of cash allowance equivalent to LTC fare to Central Government employees subject to fulfilment of certain conditions vide Office memorandum No F. No 12(2)/2020-EII (A) dated 12^th October 2020. It has also been provided that since the cash allowance of LTC fare is in lieu of deemed actual travel, the same shall be eligible for income-tax exemption on the lines of existing income-tax exemption available for LTC fare.

In order to provide the benefits to other employees (i.e. non-Central Government employees), it has been decided to provide similar income-tax exemption for the payment of cash equivalent of LTC fare to the non-Central Government employees also.

Accordingly, the payment of cash allowance, subject to maximum of Rs 36,000 per person as Deemed LTC fare per person (Round Trip) in lieu of one LTC during 2018-21 block, to non-Central Government employees, shall be allowed as income-tax exemption subject to fulfilment of conditions as specified below:

• The employee exercises an option for the deemed LTC fare in lieu of the applicable LTC in the Block year 2018-21.
• An employee, opting for this scheme, will be required to buy goods / services worth 3 times the fare.
• The scheme also requires that money must be spent on goods attracting GST of 12% or more from a GST registered vendor through digital mode. The employee is required to produce GST invoice to avail the benefit.
• As per the Scheme, deemed LTC fare will be exempt.
• The payment must be made through digital mode during the period from October 12^th 2020 to March 31^st 2021 and employee must produce GST invoice.
• The deemed LTC fare per person for a round trip will be INR 6,000 / 20,000 / 36,000 depending upon entitlement of the employee to rail fare, economy air fare or business class air fare as per their designation. The employers can decide the amount of eligibility based on the designation of the employees.
• Employees who have opted for payment of tax under the new concessional tax regime will not be entitled to this tax exemption since the same is in lieu of the exemption provided for LTC fare.
• Where the amount spent by an employee falls short of the three times of the deemed LTC fare on specified expenditure during the specified period, the tax exemption will be restricted to pro rata amount of the shortfall of LTC fare and excess LTC fare received by an employee, if any, should be refunded to the employer.

Example: Full amount of Rs. 36,000 per person spent

Deemed LTC fare:  Rs. 36,000 X 4 (number of people) = Rs. 1,44,000

Actual amount spent in full: Rs. 1,44,000 X 3 times = Rs. 4,32,000

Thus, if an employee spends Rs. 4,32,000 or above on specified expenditure, he shall be entitled for full deemed LTC fare and the related income-tax exemption.

Example: Proportionate amount of Rs. 20,000 per person spent

Deemed LTC fare:  Rs. 36,000 X 4 (number of people) = Rs. 1,44,000

Amount to be spent: Rs. 1,44,000 X 3 times = Rs. 4,32,000

Actual amount spent: Rs. 20,000 X 4 people X 3 times = Rs. 2,40,000

Amount eligible for income tax exemption = Rs. 2,40,000 / Rs. 4,32,000 X 1,44,000 = Rs. 80,000/-

In case the employee already received Rs. 1,00,000 from employer in advance, he has to refund Rs. 20,000 to the employer as he could spend only 55.55% of the required amount.

The press note released by the CBDT and the FAQs in this regard are attached herewith for ready reference.

Press note – LTC for non Govt

FAQs – LTA- FAQs

In case of any clarifications please contact Ms. Anju Eldhose at [email protected]