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Things to Know About LTC Cash Voucher Scheme

dateKnowledge Centre Team dateNovember 19, 2020 views145 Views
Things to Know About LTC Cash Voucher Scheme

As part of the central government workforce, you could be posted anywhere across the length and breadth of this huge subcontinent. To ease the financial burden of travelling to hometown the government had introduced the Leave Travel Concession or LTC benefit. However, LTC had not been limited to only the central government workforce due to its inclusion in the Income Tax Act.

LTC found place in the employee benefit schemes of many private organisations as well. However, with the COVID-19 pandemic and ensuing travel bans, LTC would be completely useless for a huge portion of the workforce.

With extended lockdowns and slowing economic activity COVID-19 has put up a challenge for the governments world-over – to stimulate economic activity despite the pandemic. The latest LTC Cash Voucher Scheme seems to be one of the solutions to infuse some money into the market.

Using LTC to Stimulate Economic Activity

Due to lockdown, travel restrictions and common safety measures during COVID-19 pandemic, a huge segment had been missing out on claiming LTC benefits. The LTC Cash Voucher scheme aims to provide other expenditure options to the central govt. employees to avail the benefits.

Recently the Central Government announced a modification to the existing Leave Travel Concession or LTC benefit available to the Central Govt. employees. The modifications allow the central government employees to utilise their LTC benefits without travelling to places.

With a workforce of 3 million-plus the modified LTC Cash Voucher Scheme aims to mobilise more than Rs. 900 billion into the economy. However, that is subject to the central government employees spending the amount required to claim the benefit.

How Does LTC Cash Voucher Scheme Work?

The cash voucher scheme is in lieu of the LTC benefit. So, before you go on to file the claim you should know that this would only apply to you in the following circumstances:

  • The scheme applies to your LTC benefit for the block of 2018-21
  • You have not availed your LTC benefit for the block or have availed the benefit only partially
  • The cash voucher scheme is available for the money spend on any family member(s) eligible for LTC benefit

Before we get into the details of how the cash voucher scheme works, we should recap the salient points of the LTC benefit.

What is LTC or Leave Travel Concession?

LTC or leave travel concession is an allowance available to the employees. This allowance is applicable for travelling to your declared hometown along with your eligible family members. LTC benefit consists of the following two benefits:

  • Leave Salary based on your current income (Basic + DA + commission based on the percentage of turnover) for up to 10 days leave
  • Transport expenses based on eligible mode of travel. Three available modes are:

    Business Class Air Travel: Maximum available amount per family member is Rs. 36,000

    Economy Air Travel: Maximum available amount per family member is Rs. 20,000

    Train Fair of Any Class: Maximum available amount per family member is Rs. 6000

  • You can receive up to 100% of the Leave encashment and 50% of the travel fair in advance
  • The travel expense part of LTC benefit is tax-exempt up to the eligible air or rail-fare amount
  • You are eligible for LTC benefit twice in a block of four years. The current applicable block is 2018-21.

The LTC benefit works in the manner such that you receive the amount actually spend or the maximum eligible amount as per limits above.

What is LTC Cash Voucher Scheme?

LTC Cash Voucher Scheme allows you to claim your LTC benefit even if you have not travelled anywhere within the current block of 2017-21. You can benefit from the scheme if you meet the following conditions with the amount you spent on your family members eligible for the LTC benefit:

  • You spend the amount after October 12, 2020 up to March 31, 2021
  • Amount of money spent has to be higher than three times of the maximum available LTC fare
  • You can only use one of the LTC benefit available in the block of 2018-21. So, if you have both LTC benefits unutilised within the block, one will be carried forward to the next block (2021-24).

What Can You Buy under LTC Cash Voucher Scheme?

  • You have spent the money on goods or services with a GST rate of 12% or above
  • You have paid for the purchase using the digital mode (bank transfer and cheque payments included, cash payment is not counted)
  • You can buy health and life insurance plans for self and eligible family members within this period (between 20 October 2020 and 31 March 2021)

Section 80C, 80D & LTC Cash Voucher for Insurance

If you purchase life insurance plans for self or family members you are generally eligible for tax saving under section 80C of up to Rs. 1.5 lakhs. Similarly, in case of health insurance, you can save tax under section 80D of up to Rs. 75,000.

However, if you buy these policies within the ambit of the LTC Cash Voucher Scheme, you will receive part of the premium as reimbursement from your employer. Thus, there is a possibility that such premiums may not be eligible for tax saving, at least not completely.

However, for now, there is no clarity on whether 80C and 80D benefits will be applicable to the life and health insurance premiums. The FAQs released by the ministry only points out that the relevant provisions will be introduced under the Income Tax Act later.

So how much do you need to spend to avail the new benefit?

How much you need to spend depends on your income (Basic, DA and eligible commission income) and your travel mode eligibility. For example, if you are eligible for economy air travel and have four eligible family members:

  • Your maximum travel fare benefit under LTC will be Rs. 80,000 (when claimed for all four eligible family member)
  • Assuming your eligible monthly income for leave encashment calculation is Rs. 1 lakh, 10 days leave encashment will be Rs. 39,000 (100,000 x 1.7 x 10/30)
  • LTC Cash Voucher Scheme requires you to spend 100% of leave encashment and 3 times of fare amount. That is Rs. 279,000 (39,000 + 80,000 x 3) in this case.

How Much Will Be Your Reimbursement?

As per the example above, your total LTC cash voucher benefit will be Rs. 119,000 (39,000 + 80,000) if you spend Rs. 279,000 on four eligible family members.

Your benefit amount will be prorated based on the following ratios in case your total expenditure is less than Rs. 279,000.

The amount you will receive as reimbursement under the new scheme depends on the ratio of the following in your total expenditure amount:

  • Leave encashment amount
  • LTC fare amount

Considering the example above, your ratios of the two benefits are as follows:

  • Leave encashment 14%
  • LTC fare amount 29%

Thus, if you spend less than Rs. 279,000, say only Rs. 200,000 your LTC cash voucher benefit will be Rs. 86,000 (28,000 + 58,000) based on the ratios:

  • Rs. 28,000 in lieu of leave encashment (14% of Rs. 2 lakhs)
  • Rs. 58,000 in lieu of the travel fare (29% of Rs. 2 lakhs)

What If You Want to Exclude Leave Encashment?

You can claim the cash voucher benefit without claiming the leave encashment. However, this will only eliminate the leave encashment portion of your LTC reimbursement.

For example, (continuing the example above) you spend Rs. 2 lakhs and don’t want to claim leave encashment, you will receive Rs. 58,000 only (in lieu of travel fare).

Are Special LTC Provisions Eligible for Cash Voucher Scheme?

As per the later clarifications issued by the Department of Expenditure from the Ministry of Finance, only the regular LTC benefits are eligible for the Cash Voucher scheme.

So, any special LTC scheme allowing you air fare for travel to other destinations than your hometown is not eligible for cash voucher considerations.

Definition of Eligible Family Members

Family members eligible for LTC cash voucher scheme are the same as LTC benefit. The following members are eligible for cash voucher spend:

  • Up to two legitimate children below the age of 25 (including legally adopted and stepchildren)
  • Legal spouse (does not include divorced or separated spouse)
  • Financially dependent parents and siblings residing with you

If you are a female employee you can include your dependent parent in-laws under your LTC benefit. Thus, if you have included your dependent parent in-laws under your LTC benefit, they will also be included for the cash voucher scheme.

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Frequently Asked Questions (FAQs)

First of all, your gross total income is taken into account and all applicable deductions/exemptions are deducted out of it, the resultant amount is the net income, upon which the Income Tax is calculated, on the basis of income tax slabs that are announced each year in the Union Budget.

How much tax you can save depends on your financial portfolio and profile. The most common avenue for tax-saving is Section 80C, which allows you deductions up to Rs 1.5 lakh in your taxable income. The implication is that you can save up to Rs 46,800*in taxes in a year, depending upon the income tax slab you belong to. Similarly, other avenues like interest on loans, health insurance etc also provide deductions capped at a certain amount.

*Tax saving of Rs.46,800/- is calculated at the highest tax slab of 31.2% (including 4% Cess) for an individual assessee on life insurance premium of Rs.1.5 lakh, who is having taxable income upto Rs.50 lakhs.

You can choose from many investments that are tax-exempt: not an exhaustive list, but includes Equity Linked Saving Scheme (ELSS), Public Provident Fund (PPF), life insurance plans, Unit Linked Insurance Plans (ULIPs), Sukanya Samriddhi Yojana, Senior citizens Savings scheme, National Pension Scheme (NPS), tax-saving bank FDs.

First of all, make investment of Rs 1.5 lakh in investments instruments covered under Sections 80C to reduce your taxable income. Claim deductions for the interests paid on home loan and/or education loan if any. Get a health insurance policy and claim for other medical expenditure like preventive medical healthcare check-up, expenditure on rehabilitation of handicapped dependent relative, among others. Mainly, the idea should be finding out which tax saving avenues fit well with your larger financial goals and invest in them!

The maximum limit of investment that will reap the benefits of deduction from taxable income under Section 80C is Rs 1.5 lakh.

There is no limit to the number of tax-exempt investments one can have in a financial portfolio. However, it is important to note that there is a limit to how useful any instrument can be for the purpose. This is because the amount of deduction that can be claimed for specific instruments is capped at a maximum value. At the same time, keep your financial portfolio balanced so that it also provides safety, returns and liquidity.

First of all, make use of the Rs 1.5 lakh deduction allowed under Section 80C. This can be done by making investments in life insurance premium, Equity Linked Saving Scheme (ELSS), Public Provident Fund (PPF), Unit Linked Insurance Plans (ULIPs), Sukanya Samriddhi Yojana, Senior citizens Savings scheme, National Pension Scheme (NPS), among others.

Second, make use of the deductions available in respect of health insurance and other medical expenses. Under Section 80D of the Income Tax Act, 1961, a deduction of up to Rs 25,000 is allowed in a year in terms of the premium paid towards a health insurance policy of Self and your family i.e., Spouse and children. This can include preventive healthcare check-ups too upto Rs 5000/-. Under section 80D you can also claim additional deduction upto Rs. 25000/- (Rs. 50000 in case of senior Citizen) for health insurance of your parents.

Apart from Section 80C, various deductions and exemptions has been provided under the provision of Income Tax Act, 1961 like deduction under section 80D can be claimed for the payment of health insurance, deduction upto Rs 50,000 on home loan interest under Section 80EE. Any donations you make to charitable institutions are also allowed as deduction under Section 80G, subject to condition prescribed therein.

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