What is Leave Travel Concession and Its FAQs

 

What Is Leave Travel Concession?

Leave Travel Concession (LTC), as the name suggests, is a benefit offered to salaried employees that helps them travel domestically. LTC benefits are provided to employees for two trips in a four-year block. This makes it easy and affordable for salaried employees to travel to their hometown and other domestic locations without having to save up too much money or take a loan.

As per the Income Tax Act, 1961, a maximum of INR 36,000 per individual could be exempt from taxes under LTC. If the employee only submitted bills of travel worth INR 20,000, only 20,000 was exempt from tax. Given the travel restrictions due to COVID-19 and to boost the economy during the festive season, the Government of India made a few changes to the LTC rules recently.

As per an announcement made by the Ministry of Finance in October 2020, individuals can now receive the maximum exemption of INR 36,000 without producing any travel bills, as long as they spend triple that amount of money on the purchase of goods or services on which they have to pay GST of 12% or more. In order to enjoy this benefit, employees must make all payments via digital modes and submit the requisite invoices and GST certificates. Retired individuals or those who have faced termination of service are also eligible to claim LTC exemptions from former employers.

We provide the below FAQs on LTC considering benefit on Insurance policies :

Sr.No.	Questions	Answers
1.	Whether this LTC scheme covers purchase of life insurance policies?	Yes.   Any goods and services which attract GST of 12% and above would qualify under the LTC scheme.
2.	Whether premium paid for a new insurance policy is eligible for LTC benefit?	Yes. Premium paid for new insurance policy is eligible
3.	Whether premium paid for an existing policy is eligible for LTC benefit?	No. Premium paid for existing insurance policy is not eligible
4.	Which insurance policies shall be eligible under LTC scheme?	Term, Endowment, ULIPs, Pension, Annuity and Health insurance policies are eligible.
5.	During which period the purchase needs to be made?	Purchases should be made during the period October 12, 2020 to March 31, 2021 (both days inclusive)
6.	Whether insurance policy should be in the name of the individual employee?	Yes. The policyholder should be the individual employee.
7.	Whether deduction under section 80C/80CCC  and exemption for LTC can be availed simultaneously on the same amount?	No. Either deduction under section 80C/80CCC or exemption for LTC can be claimed. Double tax benefit is not envisaged and hence tax benefit cannot be availed under both sections simultaneously on the same amount of premium. However if the amount of premium is partially utilized under one, balance may be used to claim the other. For example, total premium is Rs.1,20,000, and Rs. 30,000 is claimed as deduction u/s 80C, balance premium of Rs. 90,000 may be used for claiming proportionate tax exemption under new LTC scheme subject to calculation provided there under.
8.	Whether original GST invoice will be issued to the policyholder for the premiums paid as required under the new LTC scheme?	Yes. Original GST invoice will be provided to the policyholder showing an amount of premium paid along with break up of GST.
9.	Which modes of payment are eligible?	Digital mode of premium payment is eligible which includes: (a) Credit Card; (b) Debit Card; (c) Net Banking; (d) IMPS (Immediate Payment Service); (e) UPI (Unified Payment Interface); (f) RTGS (Real Time Gross Settlement); (g) NEFT (National Electronic Funds Transfer); (h) BHIM (Bharat Interface for Money) Aadhar Pay;  (i) Cheque, DD, Banker's cheque, etc.
10.	Whether GST component is to be considered for the purpose of computing benefit under this scheme (i.e. for the purpose of computing three times of the value of deemed LTC)?	In absence of any specific clarification issued by CBDT on this, it should be possible to adopt a view that exemption under LTC scheme is inclusive of GST.
11.	If proposal deposit (premium) for a new policy is paid on or before March 31, 2021 and policy is issued post March 31, 2021, whether it shall be eligible for LTC scheme?	Yes. If the risk commencement date is on or before March 31, 2021, even though policy issuance date is post March 31, 2021, it should be eligible.

 

Disclaimer: The above FAQs are prepared based on the press releases and Office Memorandums issued by the Ministry of Finance. The Income-tax law change in this regard shall be with a retrospective effect, will be done in the upcoming Finance Budget through the Finance Bill 2021-22and the subsequent enactment thereof as the Finance Act, 2021-22 under the Income-tax Act, 1961. Accordingly once enacted, the relevant provisions of the Income-tax law may need to be referred to before making any claim for an exemption.

Frequently Asked Questions (FAQs)

• Who is eligible for LTC?

  All employees who have a minimum of one year of continuous service are eligible to request for LTC. Employees can share the LTC benefit with their spouses and wholly dependent children. Unfortunately, individuals who have spouses working with the Indian Railways or National Airlines are not eligible. The current cash voucher scheme is only available to those employees who have not yet availed the tax benefit exemption for the period from January 2018 to December 2021. To be eligible for the maximum tax benefit under this scheme, employees must spend a minimum of three times the fare amount they are eligible to receive. In cases where this amount is not spent, a proportionate tax exemption can be availed. In order for purchases to be eligible, they must be bought between 12^th October 2020 and 31^st March 2021. These goods and services must be paid for via digital means and a GST certificate showing the GST of a minimum of 12% must also be submitted. Individuals who have opted for the new income tax regime will not be able to avail any tax exemptions under LTC.

• How is LTC calculated?

  The amount of LTC an individual is eligible to claim depends on their rank, salary and mode of transport. Individuals who are travelling by air will be eligible to claim an amount that is not more than the regular return economy fare for the shortest possible route on the National Carrier. If the employee is travelling to a place that is connected by rail and is travelling by any mode of transport other than air, they are eligible to claim LTC that does not exceed the cost of the 1^st class or deluxe return fare on the shortest route by a recognised public transport system. Or, they can claim the equivalent of an AC first class rail return fare if they have undertaken the journey by rail. These terms hold true even in cases where the origin and destination are not directly connected by rail. The amount is provided for each family member and is capped at a maximum of INR 36,000 per person.

• How many times can LTC be claimed?

  In a given concession block of four years, LTC can be claimed on a maximum of two journeys. . If an individual has not claimed any LTC in the four-year block, they are eligible to carry over one trip to the first calendar year of the following block. This is known as carry over concession. LTC can be claimed by an employee for travel expense of himself and his family.

• What is leave travel concession for central government employees?

  Civil servants who serve the central government are also eligible for tax exemptions under LTC. This is applicable to all individuals who are appointed to the civil services, including those in the defence services, those who are employed by a State Government and are on deputation with the Central Government, those appointed on a contract basis and those who are re-employed after their retirement. This benefit is not extended or offered to those individuals who are not under full-time employment, those who are engaged on a daily-wage basis, individuals who are paid from contingencies, railway employees, members of the Armed Forces, and those eligible for other forms of travel concessions. For a Central Government employee to be eligible, they must complete at least one year of continuous service before the first proposed travel date.

• What is leave travel concession block year?

  Employees are provided the LTC benefit for four calendar years. Together, these four years are referred to as a block year. Currently, the block started on 1^st January 2018 and will continue till 31^st December 2021. During a single block, employees can make two domestic trips and avail LTC for the same. Of these two trips, the individual must make at least one trip to their hometown. If the employee does not fulfil these conditions, they will not be allowed to claim LTC. Further, an individual can carry forward just one LTC-approved leave to the following block, but they must make the trip within the first calendar year of that block. Currently, employees who have not availed their second trip can carry it forward, but they must travel in the year 2022 to avail the LTC exemptions.

• How much tax is saved by opting for LTC?

Individuals who have not opted for the new income tax regime can enjoy tax exemptions against their LTC cash vouchers. We can understand how much tax can be saved with the help of an example. Let's say an employee, who is the head of a family of four, is eligible to the maximum LTC fare of INR 36,000 per person. His total LTC is INR 1,44,000. Using the maximum marginal rate of 42.74%, this individual could save up to INR 61,556 on taxes. Individuals who would like to avail the new cash voucher scheme must ensure that the goods and services they purchase attract a GST of at least 12% and should be purchased from GST registered vendor. Additionally, they must make all their purchases within the period of 12th October 2020 and 31^st March 2021.

• What is deemed LTC scheme?

  The Finance Minister announced a new LTC scheme in October 2020. As part of this new scheme, employees can avail LTC tax exemptions without having to travel. Instead, individuals must spend a minimum of three times their eligible LTC amount on goods and services that have a GST of at least 12%. To be able to enjoy this new scheme, employees must make their purchases within a given time frame, i.e. 12th October 2020 and 31^st March 2021. They must also receive a GST certificate from a GST-registered vendor whenever they purchase the goods and services and they should make all payments via digital payment modes only. Initially, this scheme was only available to Central Government employees but has now been extended to private-sector employees as well.

• Is the new LTC scheme applicable on insurance?

  Yes, since insurance products attracts a GST of 18%, the new LTC scheme is also valid on insurance. Products such as term plans, Unit-Linked Insurance Plans (ULIPs), health insurance, endowment plans, and pension and annuity plans are all eligible. It's important to note that the LTC scheme can only be availed while purchasing a new policy. Premiums paid on existing insurance policies will not be counted as valid. The purchase of the new insurance policy must be completed any time between 12^th October 2020 and 31^st March 2021 for the policy to be valid under the scheme. If individuals have already claimed deductions under Section 80C/80CCC, it's important to note that they cannot claim LTC for the full premium amount. But, if the premium is partially utilised under one deduction, the balance amount can be claimed under the scheme. For example, an individual may claim a deduction of INR 40,000 under Section 80C on a premium payment of INR 1,50,000. The balance amount of INR 1,10,000 can be used to claim the proportionate tax exemption under the new LTC scheme.

• Is the scheme applicable to those in the concessional income tax regime?

  As per the new concessional income tax regime, the tax slabs has been modified, but only if these individuals do not opt for any deductions or exemptions as allowed by the Income Tax Act, 1961. Given this, individuals who have opted for the concessional income tax regime cannot avail exemptions for their LTC.

• Should you opt for the LTC Voucher Scheme?

This depends entirely on your planned expenditure for the year. Let's say you were planning to make a big-ticket purchase this year that is worth three times the amount of your LTC. It would make sense to opt for the LTC voucher scheme as you can receive your LTC in cash and will not have to pay additional tax on it. On the other hand, if your taxable income is not very high and you do not have the means to make a big purchase worth the necessary amount, it may be better to opt out of the scheme. If you do have some purchases you would like to make, you can still avail of the scheme, but the tax benefits that you receive may not be as high as if you were spending the whole amount required. Instead, they will be proportional to the amount you spend.

 

Disclaimer : This is a propose law change by Union Budget 2021-22. However rules providing prescribed condition for the claim in relation to deemed LTC are yet to be announced. Also, the customer is requested to seek tax advice from his Chartered Accountant or personal tax advisor with respect to his LTC claim under the Income-tax law.