To boost the consumption that has been ravaged by the Covid-19 Pandemic, the Government announced a Special Cash Package on 12 October 2020 for Central Government employees. This package is in lieu of the Leave Travel Concession (LTC).
The Income Tax Department issued a press release on 29 October 2020, extending these benefits to Non-Central Government employees, i.e., State Government and private sector employees. In this article, we will discuss the Special Cash Package in detail:
An employee is eligible to claim LTC as per Section 10(5) of the Income Tax Act, 1961. As per the rules, employees can claim an exemption for eligible expenses incurred, while travelling (on leave), anywhere in India. The claim can be made twice in a block of four years. The current block is 2018-21.
In case the employee does not utilise/claim the LTC during the block period, then he/she is eligible to carry forward one claim to the next block provided that he/she claims the amount in the first year of the next block, i.e., 2022-25.
Note: To claim this exemption, LTC must be a part of the employee’s CTC. Furthermore, GST invoices for expenses incurred during the travel should be submitted to the employer.
Covid-19 deeply impacted the travelling and hospitality industry, and that is why a large number of employees were unable to utilise the LTC in the current block. This Special Cash Package allows Central Government employees to avail the benefits of LTC through other expenditures. The salient features of this package are:
- Cash equivalent for LTC (comprising of Leave encashment and LTC fare) can be paid as a reimbursement to the employee if the employee opts for this in lieu of one LTC in the 2018-21 block. The conditions attached to this are:
- For the Leave Encashment component, the amount will be admissible if the employee spends an amount equal to the leave encashment value.
- For the LTC fare component, the Central Government has announced deemed LTC fares as follows:
|Category of Employees||Deemed LTC per person for Round Trip|
|Entitled to business class of airfare||INR 36,000|
|Entitled to economy class of airfare||INR 20,000|
|Entitled to rail fare of any class||INR 6,000|
- The cash equivalent can be allowed to the employee, If he/she spends three times the value of the fare mentioned above, (as applicable) between 12 October 2020 to 31 March 2021.
- The expenditure in both the cases needs to be incurred on the purchase of goods and/or services that have a GST rate of 12% or more, from GST registered vendors and/or service providers.
- The payments must be made through a digital mode.
- The voucher or invoice obtained must indicate the GST number of the vendor/service provider and the GST amount.
- Tax as TDS shall not be deducted for the reimbursement of the deemed LTC fare.
- 100% of the leave encashment and 50% of the eligible deemed fare’s value can be obtained as an advance from the employers. This advance will be adjusted as and when receipts are produced. Non-utilization of the advance before the end of the financial year can result in an immediate recovery along with penal interest.
- If the full value of the required expenditure is not met, then the leave encashment admissible and deemed LTC will be calculated proportionately.
As per Section 10(10AA):
- Pay of the employee: INR 1,00,000
- Number of members in the family: 4
- Number of days for leave encashment: 2
- Eligible class of travel: Economy air travel
|Leave encashment value (A)||INR 1,00,000 * 2 * 10 = INR 66,667
|Deemed value of fare (B)||INR 20,000 * 4 = INR 80,000|
|Total value of cash benefit (A) + (B)||INR 146,667|
|Total Amount to be spent to avail full cash benefit||INR 66,667 + (INR 80,000 * 3) = INR 306,667|
|a) Share of leave encashment||INR 66,667 * 100 = 22%
|b) Share of deemed fare||INR 80,000 * 100 = 26%
In the above example, if the employee spends INR 306,667 or more, then, he/she will be allowed to claim the full cash benefit of INR 146,667. If the employee spends only INR 250,000, then, he/she will be allowed:
- 22% for leave encashment i.e., INR 250,000 * 22% = INR 55,000 and
- 26% on account of deemed LTC fare i.e., INR 250,000 * 26% = INR 65,000. The total value of the cash benefit will be INR 1,20,000 only (against the available limit of INR 146,667).
The Central Government has issued an Office Memorandum dated 20 October 2020 to clarify the following points:
- Employees are not required to actually travel to avail the benefits of the Special Cash Package.
- This scheme can be utilised only for the unutilised LTC fare during the current block period, i.e., 2018-2021.
- In case the employee has exhausted his/her leaves, the employee can utilise the scheme only for the LTC fare without claiming leave encashment.
- Multiple invoices for the purchase of goods and/or services can be submitted, and the invoices must be in the name of the employee claiming the benefits of the scheme.
- Purchases made through e-commerce platforms are also permitted.
In the press release issued by the Income Tax Department, it was noted that the maximum deemed LTC fare allowance is restricted to INR 36,000 per person. The claim can be made by Non-Central Government employees (State Government and private sector employees) if the following conditions are satisfied:
- This option is exercised in the 2018-21 block for the deemed LTC fare in place of the actual fare.
- The employee spends a sum equal to three times the value of the deemed LTC fare on the purchase of goods and/or services that carry a GST rate of 12% or more from GST registered vendors and/or service providers between 12 October 2020 to 31 March 2021.
- The payments are made through a digital mode.
- A voucher or invoice indicating the GST number and amount of GST paid is obtained/available.
Note: If the employee spends less than three times the amount, then the income tax exemption is proportionately calculated.
if the deemed LTC fare is INR 35,000, the total amount to be spent is INR 1,05,000 (INR 35,00*3). If the actual amount spent is INR 80,000, then the eligible deduction is INR 35,000 * INR 80,000 / INR 1.05,000 = INR 26,667.