LTC cash voucher scheme: Ahead of Diwali, there’s good news for private-sector employees as the government has extended the Income Tax benefit on the LTC Cash Voucher scheme to the non-Central Government Employees, which includes private-sector workers as well.
In its statement, the government said: “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.”
It has been decided to provide a 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 a maximum of Rs 36,000 per person as Deemed LTC fare per person (Round Trip) to non-Central Government employees, shall be allowed income-tax exemption subject to fulfillment of conditions.
Also, the goods and services have to be bought through digital mode and the employees should obtain the receipt indicating the GST number of the vendor and the amount of GST paid.
How much goes out of your kitty in order to save taxes?
“The maximum deemed LTC fare per person is Rs. 36,000, which would entail a maximum deduction of Rs. 144,000 for a person with a family of four. This could translate to a tax benefit around Rs. 61,556 at the maximum marginal rate of 42.744%,” Saraswathi Kasturirangan, Partner, Deloitte said.
To avail of this tax benefit, the employee is required to spend three times the eligible amount on the purchase of goods/services which carry a GST rate of not less than 12% from GST registered vendors/service providers through digital mode, she added.
So, if we assume that a person can claim Rs 144,000 as LTC and falls in the highest tax bracket of 42.74% (30% slab rate, including 37% surcharge and 4% cess on income more than Rs 5 crore), he would save Rs 61,551 in tax. But, if you want to save Rs. 61,551 in tax then in that case the person will have to spend Rs 4,32,000 (1,44,000*3).
On the other hand, if you are someone who earns 5-10 lakhs per month, then by using the same logic as above, you would save Rs 29,952. Which is 14.42% times higher than the amount of tax that will be saved.
Should opt for the LTC cash voucher?
“You shouldn’t claim (opt for this) for the heck of claiming the Rs 30,000. If you have expenses planned for the remaining six months this year then you can use it to your advantage,” financial adviser Surya Bhatia said.
However, if you have some purchases lined up, seeing as it is Diwali, perhaps a long due round of home renovation or if you are eyeing the new iPhone 12, this cash voucher will lend you the financial hand to make all your payments.
