Updated on:28 September 2023
The LTC (Leave Travel Concession) Cash Voucher Scheme is a government initiative that allows central government employees to receive cash equivalent to their LTC entitlement. The scheme was launched in 2020 to boost consumer demand and provide tax benefits to individuals who could not claim the usual LTC tax benefit due to Covid-related travel restrictions.
Key Takeaways
- The LTC Cash Voucher Scheme is a government initiative allowing employees to claim a cash payment in lieu of LTC from 2018 to 2021.
- The scheme is only available to employees who have not availed the full amount of their LTC during 2018 and 2021.
- The cash equivalent is tax-free and can be used to purchase any goods or services, including insurance premiums.
- The transactions should be made using a digital mode, and the employee must show proof of receipts.
The year 2020 brought travel to a standstill. With the Covid-19 pandemic, lockdowns were imposed across the length and breadth of the country, and people were confined to their homes. Travel was out of the question, and some people even struggled to get back to their hometowns.
Government and private-sector employees are given a Leave Travel Allowance (LTA), also known as the Leave Travel Concession (LTC), as part of their salary composition. Since people could not travel at all, the government has offered an LTC Cash Voucher Scheme so that employees do not miss out on the benefits of LTC. Here is everything you need to know about LTC and the LTC Cash Voucher Scheme.
What is LTC?
Leave Travel Concession or LTC is a salary benefit given to the government and private employees for travels made to their hometown with their family members twice in four years. Travels made with family members can include a spouse and up to two children. Dependent parents and siblings traveling with the employee can also avail of this benefit. Depending on the income of the employee, the employee can claim either air or rail travel reimbursements for their expenses. Some employees can also opt for leave encashment for up to 10 days.
LTC is a tax-exempt benefit up to the authorized air or rail fare. The maximum available fares are as follows:
- Air travel in business class: Maximum available amount for each family member is ₹36,000.
- Air travel in economy class: Maximum available amount for each family member is ₹20,000.
- Rail travel (all classes): Maximum available amount for each family member is ₹6000.
Employees can multiply this by the number of family members to know the maximum fares applicable to the family. For instance, for a family of three, the maximum available amount for rail travel would be:
₹6,000 x 3 = ₹9,000
What is the LTC Cash Voucher Scheme?
The LTC Cash Voucher Scheme was announced in October 2020. Under the scheme, employees can claim a cash payment in place of LTC during the years 2018 to 2021. The cash payment can be used to buy goods and services that are equivalent to the value that is three times the fare and one time the full leave encashment before March 31, 2021. Moreover, the goods and services bought should come with a Goods and Service Tax (GST) of 12%. In addition to this, only digital transactions will qualify for the scheme, and the employee availing of the scheme needs to produce a GST invoice to support their purchase.
Employees who have availed the full amount of their LTC during 2018 and 2021 cannot use this cash voucher scheme. So, the scheme stands null and void for employees who may have traveled before the pandemic and claimed LTC.
Features of the LTC Cash Voucher Scheme
The main features of the LTC Cash Voucher Scheme are:
- Employees can receive a cash equivalent of their LTC entitlement instead of traveling.
- The cash equivalent will be estimated based on the employee’s pay and the number of family members traveling with them.
- The cash equivalent will be tax-free.
- Employees can use the cash equivalent to purchase goods and services, including insurance premiums.
Benefits of the LTC Cash Voucher Scheme
The LTC Cash Voucher Scheme is a beneficial scheme that allows government employees to receive tax-free cash equivalent to their LTC entitlement, which they can use to purchase goods and services. Here are some other benefits of the LTC Cash Voucher Scheme:
Tax Benefits
The cash equivalent received under the scheme is tax-free. This can save employees a substantial amount of money.
Flexibility
Employees can choose to use the cash equivalent to purchase any goods or services they want. This gives them more flexibility than the traditional LTC scheme, which only allows employees to use the money for travel expenses.
Boost to Consumption
The scheme helps to boost consumer demand by encouraging people to spend money. This can help to stimulate the economy.
Calculating the Claim Amount Under the LTC Cash Voucher Scheme
The LTC Cash Voucher Scheme calculation is based on the employee’s salary, including the basic pay and DA (Dearness Allowance). The eligibility of each employee for the type of travel, i.e., air (business class and economy class), train, etc., is also a determinant here. It can be determined as follows:
Maximum available amount X members traveling
Cash amount = Leave encashment amount (N) + 3 X Maximum available amount
Here is an example of how employees can calculate their LTC cash voucher amount:
For a family of four eligible to travel by air in business class, the total LTC benefit will be:
₹36,000 x 4 = ₹1,44,000
Let us assume the leave encashment amount for this employee is ‘N’ based on the DA and basic salary. Then the LTC cash for this employee will be 100% of the leave encashment added to thrice the fare amount. It comes down to:
N + 1,44,000 x 3
Deemed LTC Fare
The deemed LTC fare is the amount of money that an employee is considered to have spent on travel expenses under the LTC Cash Voucher Scheme. It is calculated based on the employee’s pay and the number of family members traveling with them.
The deemed LTC fare is used to determine the amount of cash equivalent that an employee can receive. For example, the maximum tax benefit for business class air travel is ₹36,000 per person. This means that a family of four can claim a maximum tax benefit of ₹1.44 lakh. To claim the maximum tax benefit, an individual taxpayer will need to spend ₹4.32 lakh (₹36,000 x 4 x 3).
Who Qualifies to be an Eligible Family Member Under the LTC Cash Voucher Scheme?
The following family members are eligible for the LTC Cash Voucher Scheme:
- A legally wedded spouse can be included. However, divorced or separated spouses are not included in the scheme.
- Up to two legitimate children of employees below 25 can be included in this benefit. It can also include legally adopted children as well as stepchildren.
- Parents or siblings who are financially dependent on the employee claiming the scheme.
- Female employees can include their dependent parents-in-law.
Considerations While Availing the LTC Cash Voucher Scheme?
Some of the points that one must keep in mind while availing of the benefits of the LTC Cash Voucher Scheme are:
- Transactions should be made using a digital mode. It can include bank transfers, debit and credit card payments, UPI, net banking, BHIM, and payments made through a cheque. Cash payments will not be considered.
- Employees need to carry out their purchases after October 12, 2020, up to March 31, 2021.
- Under the list of goods and services, the government has also included health insurance and life insurance plans for the employee and eligible dependent family members.
- An employee must spend three times the cost of the highest LTC fare. For various employee travel eligibility categories, different LTC fares are currently available.
- In order to receive the benefit, the employee must spend 100% of the leave encashment value.
- In order to receive benefits under the scheme, an employee must show proof of receipts (including the invoice and information about the GST paid).
- 100% of the leave encashment amount and 50% of the travel fare amount will be deposited into the employee’s bank account, and the remaining balance will be paid upon presentation of purchase receipts.
- An employee can choose only to use the travel expense benefit. Optional leave encashment benefits are available.
To Sum It Up
The LTC Cash Voucher Scheme is a benefit that can be of advantage to both employees as well as the government. While employees do not lose out on claiming LTC due to the lockdown and restrictions on travel, the government and the economy benefit by boosting the sale of goods and services with or above a GST of 12%. Moreover, the process to claim this scheme is uncomplicated, transparent, and employee-friendly.
FAQs
1
What happens if both spouses are eligible for the LTC Cash Voucher Scheme?
If both spouses are eligible to claim the LTC Cash Voucher Scheme, in this case, the couple can calculate their cash amounts as per their specific incomes, produce the relevant invoices, and avail of the cash benefit individually.
2
What happens if the employee only spends part of the amount on purchasing goods and services?
The employee can still claim the scheme’s benefits if the entire amount is not spent on purchases. However, in this case, the allowance and tax benefit will be given out on a pro-rata basis.
3
Is there a limit on the number of items or services an employee can purchase under the LTC Cash Voucher?
There is no fixed limit on the number of goods and services purchased as long as they are bought after October 12, 2020, and before March 31, 2021. The entire amount can be spent on one item, or the employees can purchase several items per their unique needs and want.
4
What items can the employee purchase under the LTC Cash Voucher Scheme?
Employees can purchase any item with a GST of at least 12% or more. It can include physical goods and services.
5
Is the LTC Cash Voucher Scheme available to employees who opt for the new tax regime?
Since the new tax regime rules mandate that the employee cannot take certain tax exemptions and deductions, the LTC Cash Voucher Scheme cannot be claimed by an employee opting for the new tax regime to file their income tax return.
6
Can the LTC Cash Voucher Scheme be claimed partially?
Yes, the LTC Cash Voucher Scheme can be claimed partially. It implies that a part of it can be used to purchase the required goods and services, and the other half can be used for travel purposes.
7
What are the tax implications of the LTC Cash Voucher Scheme?
The tax benefits of the LTC Cash Voucher Scheme are the same as LTC. Employees can avail of a tax exemption up to the qualified amount.
