Central government on 12.10.2020 has announced a special cash package in lieu of leave travel concession (LTC) fare for government employees for the block of 2018-21.
This step was taken because of the effect of Covid-19 because of which transport and hospitality sector was disrupted and employees were not able to use their leave travel concession.
Thus, after lockdown to encourage spending by employees so that consumption expenditure is boosted government announced this plan.
Under the above scheme there are two benefits:
1. Full exemption of leave encashment if the full amount is spent.
2. Cash equivalent of leave travel concession if an amount equal to 3 times is spent by the employee.
The amount should be spent on goods/ services which carry GST rate of more than 12% from GST registered vendors and payment should be made through digital mode along with invoice indicating GST number and amount of GST paid.
The deemed LTC for the above purpose is as follows:
|Category of employees||Deemed LTC fare per person|
|Employees who are entitled to business class of airfare||Rs. 36,000|
|Employees who are entitled to economy class of airfare||Rs. 20,000|
|Employees who are entitled to Rail fare of any class||Rs. 6,000|
Although TDS is applicable on leave encashment exemption in line of LTC shall be allowed under Income tax.
Also it was announced that an amount equal to 100% of leave encashment and an amount equal to 50% of the value of deemed fare may be paid in advance in the bank account of the employee.
Further the utilisation needs to be made till 31.03.2021 and in case of non utilisation, immediate recovery will be made of full advance paid.
Calculation of the exemption will be as under:
Pay on an employee is 1,38,500 and has family of 4 eligible for economy class air travel:
Leave encashment: (1,38,500*1.17*10)/30 = 54,015
Fare value: 20,000*4 = 80,000.
Total value = 1,34,015.
Amount to be spent to get full benefit: 54,015+ (80,000*3) = 2,94,015.
Share of Leave encashment on total is: 18% and share of LTC on total spend is 27%.
Thus, if total spend is below 2,94,015 then proportionate exemption shall be available.
Do remember that such exemption shall not be eligible if the employee opts for new tax regime u/s 115BAC
Further, CBDT vide Press release Dt. 29.10.2020 had announced that same benefit shall be also allowed to non-government employees but the exemption shall be only allowed for LTC and not leave encashment.
To read the above exemption notification/ press release Click below: