LTC Scheme Extended To Non-Central Government Employees
The travel allowance scheme initially announced for central government employees has now been extended to all other employees with riders to boost consumption during the festive season.
The government has announced that all non-central government employees will be eligible for income tax exemption for the entire leave travel concession amount up to Rs 36,000 per person without producing travel bills. However, such employees will have to spend three times the amount for purchasing goods or services on which GST of 12% or higher is levied, said a press release from Central Board of Direct Taxes.
Employees will have to make purchases through digital payment mode and submit the invoices to avail of the benefit.
What’s LTC For Private Sector?
Unlike government employees, their private sector peers have a part of their salary, or cost to company, structured as leave travel concession. This is done to save tax on the total income of the employee. By showing travel expenses, the employee can avail the income tax exemption on the travel amount. For those who haven’t availed this benefit during 2018-21 would be eligible for the tax exemption.
Here’s What Government Is Offering
An employee who has not availed LTC during 2018-21 would be eligible to avail the tax exemption subject to the condition that the person spends three times that amount on goods or services with GST of 12% and above.
Those who spend less than three times the fare amount will get proportionate income tax exemption. For example, if the LTC fare is Rs 20,000, and is claimed for a family of four, then the employee would get Rs 80,000 (20,000 x 4). The amount that the employee will have to spend would be Rs 2,40,000 (Rs 80,000 x 3). However, if the employee ends up spending only Rs 1,80,000, the person would get tax exemption of Rs 60,000 (75% of 80,000).
Will It Work?
The tax exemption will be a relief for those employees who have already planned some expenditure, such as purchase of a vehicle, electronics, or items attracting GST of 12% or higher, said Shailesh Kumar, a partner at Nangia & Co. LLP.
The income tax benefit may actually be considered as a discount on expenditure, which the employee has already planned, but is unlikely to nudge people to spend more, Kumar told BloombergQuint.