Explainer: Now private employees will also get LTC like tax benefits, no need to travel

Earlier on October 12, Finance Minister Nirmala Sitharaman had said that the central employees would be given cash vouchers for Travel Leave Concession (LTC). Now the Finance Ministry has said that the employees and private employees of the State Governments will also get the benefit of income tax on whatever allowance is available at par with LTC.

Explainer: Now private employees will also get LTC like tax benefits

The Finance Ministry, while giving relief to non-central employees, announced on Thursday that they too will be given the benefit of income tax exemption in lieu of expenses like LTC and they will not have to travel for it. Let’s know what is the LTC exemption and what is the meaning of this announcement.

LTC cash vouchers were announced 

It is worth noting that earlier on 12 October, Finance Minister Nirmala Sitharaman had made an important announcement, saying that the central employees would be given cash vouchers of Travel Leave Concession (LTC). This meant that there would be cash payment in lieu of LTC which would be digital. It will be from 2018 to 2021. Under this, the fare of the train or plane will be paid and it will be tax free. For this, the rent and other expenses of the employee should be three times. Similarly goods or services have to be taken from GST registered vendor and payment should be digital. 

With the help of this cash voucher, employees will be able to buy such non-food items, on which GST is at least 12 percent. The government says that in view of the Corona crisis, a decision has been taken to give cash vouchers. 

How long can I spend the amount?

Actually, every four years, the government gives LTC to its employees in two categories. Under this schemes, the employee is allowed to travel around the country. LTC is paid for the employees to visit their home state twice within 4 years. But this time, due to Corona epidemic, it has been decided to give cash vouchers in lieu of LTC to the employees. Employees will be able to use this cash voucher till 31 March 2021. 

Now the Finance Ministry has said that employees of state governments, employees of enterprises of state governments and private sector employees will also get the benefit of income tax on whatever allowance is equal to LTC. Significantly, private sector employees get Leave Travel Allowance. 

The Finance Ministry said in a statement, “To benefit other employees also, it has been decided that they too should be exempted from income tax on cash payments equivalent to LTC Fair.” 

Under the LTA, private sector employees have rent reimbursements for themselves or their family to go for a holiday tour or hometown. This amount is according to the basic salary of the employee. This reimbursement gets tax exemption, which means it is reduced from their taxable income. But now private sector employees will also not need to travel and they will be able to avail tax rebate by purchasing goods with GST bill. 

According to the statement of the Finance Ministry, in the case of non-central employees, only LTC equivalent amount of maximum Rs 36,000 per person will get the benefit of tax exemption. 

How much will cost and what are the conditions 

The conditions for this exemption are the same, which have been fixed in the case of LTC. This expenditure should be in the block from the year 2018 to 2021. The employee will have to spend three times this amount on non-food items or services (eg TV, fridge like white goods, hotel accommodation, etc.). 

This expenditure will have to be incurred on such goods or services on which GST is at least 12 per cent. This expenditure will be done in a digital way rather than cash. For this, the employee will have to take such a bill, on which the GST number of the shopkeeper or institution is recorded. This purchase should be done from now till March 2021. 

What will happen if you spend less 

The Finance Ministry has said that if an employee spends less than the eligible LTC, then his income tax benefit will also be reduced in the same proportion. Keep in mind that people who adopt the new tax slab applicable from this year will not get the benefit of this exemption. 

Suppose an employee has spent a total of 80,000 rupees in four years under LTA or equivalent LTC scheme. So he will have to spend at least Rs 2.40 lakh by March 31 to take advantage of the tax rebate. Now, if an employee is able to spend only Rs 1.80 lakh, then only LTA of up to Rs 60 thousand (ie 75 per cent) will get the benefit of tax rebate.