Individuals who are planning to opt for the existing tax regime in the FY 2020-21 can avail the benefits of the government's Leave Travel Concession (LTC) Cash Voucher Scheme. However, if you opt for new concessional tax regime then you will not be able to take the benefit of the LTC cash voucher scheme unless specifically clarified by the government via an amendment in the law, say tax experts.
As per existing income tax law an employee can claim tax exempt payment of LTA/LTC (if provided by employer) equal to fare of domestic travel subject to limits and conditions. To claim this tax exemption under section 10(5) of the Income-tax Act, 1961, an employee is normally required to provide proof of his travel. The government has introduced a LTC/LTA cash voucher scheme to allow employees eligible for LTC/LTA to claim tax exempt reimbursement of similar amounts subject to certain limits and spending conditions. This has been done as employees are unable to travel due to the coronavirus pandemic.
However, as per experts an individual opting for the new concessional tax regime prescribed under Section 115BAC of the Income-tax Act cannot claim the tax exemption benefit offered under the LTC cash voucher scheme. This is because the new concessional tax regime offers lower tax rates but without most of the tax breaks/exemptions, including LTA, available under the existing tax regime.
ET Online spoke to tax experts regarding this and this what they have to say. Abhishek Soni, CEO & founder, Tax2win.in: There is no clarity whether this benefit will be available to the persons who are opting for the New optional Tax Regime under Section 115BAC. In our view, this benefit will not be available under the New Tax Regime unless specifically permitted by the government. The rules and clarifications in this regard are expected soon from the government.
Tax2win.in is an income tax return filing online service website.
Dr Suresh Surana, Founder, RSM India: The LTC cash voucher scheme does not specifically mention whether the tax exemption would be available in case of any person opting for the new tax regime under section 115BAC. At present, as per Section 115BAC, no exemption under Section 10(5) related to leave travel concession is available for individuals opting for new tax regime. And the LTC cash voucher scheme is merely created as an alternative opportunity for the taxpayers to claim benefit of LTC byway of incurring certain specific consumer expenditure instead of undertaking travel journey. Thus, applying the said rationale of existing provisions of the Income Tax Act, it may be interpreted that the tax exemption benefit would not be available for those applying for new tax regime.
RSM India is a consultancy firm offering tax and audit services.
Chartered Accountant Naveen Wadhwa, DGM, Taxmann.com: The new scheme has provided that since the cash reimbursement of LTC fare is in lieu of actual travel, the exemption (in the new LTC cash voucher scheme) shall be allowed on the lines of existing income-tax exemption available for the LTC Fare. To bring the announcement of the new LTC scheme in force, the CBDT may bring an amendment notification amending Rule 2B in in this respect. However, as Section 115BAC(2)(i) covers Section 10(5) in the list of prohibited exemptions or deductions, the assessee opting for section 115BAC (the new tax regime) will not be able to claim this (LTC Cash Voucher Scheme) exemption. Thus, employees opting for the new tax regime will have to pay tax on the amount received under this package if they avail it.
Remember, the recently announced LTC Cash Voucher scheme for central government employees aims to provide tax saving for an employee and boost his spending power. The government has clarified that the tax exemption on LTC scheme would be available for state government, public sector units, public sector banks as well as for private sector employees.
However, as mentioned above by the tax experts those opting for new concessional tax regime will not benefit from the cash voucher scheme unless the government specifically clarifies via amendment that the LTC cash voucher scheme benefit would be available even in the new tax regime.
Another thing to remember is that working of LTC for a government employee and a private sector employee is different. In case of a government employee, he/she is required to take leave and travel to claim the LTC amount and avail the tax exemption, otherwise it lapses. In case of a private sector employee, LTC or LTA is part of the CTC and paid as a taxable allowance unless an employee undertakes the travel and submits fare bills to his/her employer, subject to rules and conditions of the Income-tax Act.
Thus, a government sector employee cannot claim LTC at all, tax exempt portion and non-exempt amount, unless he travels. In case of private sector employee, if he does not travel then he cannot avail tax-exemption for LTA/LTC but can get the LTA amount as taxable payment.
From this financial year onwards, a salaried individual has the option to go for the new concessional tax regime (without any tax exemptions or deductions) or continue with the existing/old tax regime (with tax exemptions and deductions). Individuals who have opted for the old tax regime can benefit from the cash scheme, but it looks like those who have opted for the new regime might not be able to enjoy the tax benefit.
Another issue that needs clarity In an office memorandum dated October 12, 2020, the government has come out with the working of the LTC cash voucher scheme. However, there are certain aspects that still need clarity.
The office memorandum issued for central government employees has said that the purchases need to be made prospectively between October 12, 2020 and March 31, 2021.
It needs to be clarified whether the bills must be made in the employee's name or can bills be made in the name of family members? Remember, in case of claiming LTC exemption, an employee is required to submit the actual air/rail ticket of his and his family members. Therefore, tickets can be in name of the employee and family members.