Personal Finance

Budget 2022 should extend LTA cash voucher scheme due to continuing COVID-19

By Parizad Sirwalla

The Income-tax Act, 1961 (‘the Act’) provides for a tax exemption for the value of travel concession or assistance (commonly referred to as LTC/ LTA) provided by an employer to employee. However, due to the travel restrictions imposed because of the Covid-19 pandemic, individuals could not travel. Hence, taxpayers could not also claim an income tax exemption in Financial Year (‘FY’) 2020-21 in this regard. Consequently, to offer relief to the employees and boost consumption in the economy, the government announced the LTC cash voucher scheme (‘scheme’) in October 2020, which was later notified vide Finance Act, 2021 to be valid only until March 31, 2021.

As per the scheme, an individual had to purchase any goods or avail any services attracting a GST rate of not less than 12 per cent through digital means (i.e., non-cash modes) and avail the income tax exemption of deemed LTC fare, i.e., up to Rs 36,000 per person up to 4 family members or one-third of the expenditure incurred, whichever is less. As per the design of the scheme, an employee who opted for this scheme was entitled for a tax-free reimbursement from the employer post the validation of purchase bills (without the need to submit any travel proof). An employee who had spent less than three times of the deemed LTC fare on specified expenditure was entitled for an exemption on a pro-rata basis.

Such goods/services were to be bought/availed from a GST registered vendor/service provider through electronic mode (such as NEFT, cheque, UPI, etc.) during the period October 12, 2020 to March 31, 2021 to avail the benefit of the scheme. Cash payment was not allowed. The individual was required to collect the invoice having GST number of the seller and GST amount paid. These invoices were to be submitted to the employer to claim the benefit. Individuals were allowed to submit the invoices in their family member’s name too.

If the eligible bills were submitted to the employer, then the employer was not required to deduct tax at source (TDS) on the deemed LTA amount paid against those bills. This amount paid was to be reported as tax exempt in the Form 16 issued by the employer. The exemption was equivalent to an LTC claim of 1 trip in the block of 4 years (2018-2021).

The resurgence in Covid cases in FY 2021-22 (during the second wave) further hampered travel within the country due to the restrictions imposed by various state governments. Further, the recent surge due to the Omicron variant has put travel on hold again which may continue in FY 2022-23 as well. Hence, the extension of the scheme for two more years, i.e., up to March 31, 2023 in the upcoming Union Budget 2022 would be a welcome move. The benefit of this scheme could also be extended to the taxpayers who have opted for concessional tax regime under section 115BAC of the Act.

This scheme potentially plays a pivotal role for the economic recovery of the country which has been severely impacted over the last couple of years, by providing impetus to consumer demand for specified expenditure and enhancing the tax revenues for the government. The government may also contemplate increasing the amount of tax exemption available, i.e., deemed LTC fare available in under the scheme. When it was last introduced, the scheme offered one-third of the amount spent. However, by increasing it to, say one-half of the expenditure incurred, it will provide incremental relief to the adversely affected salaried taxpayers and their families during these unprecedented times.

(The author is Partner and Head, Global Mobility Services-Tax, KPMG in India.)


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