How to Claim LTA Exemption in FY 2020-21: LTA Cash Voucher Scheme Details

Leave Travel Allowance or LTA allows individuals to claim tax exemption for a trip made within India for the taxpayer and his/her family under Section 10(5). Under LTA, the employees can claim the fare tickets as an exemption for travelling anywhere in India twice in a block of 4 years. 

Click here to know more about LTA exemption.

However, due to the COVID pandemic, people could not travel and hence the employees would have to pay tax on the LTA component of the salary. 

With a view to helping salaried individuals claim the exemption as well as boost the selling of commodities and services, the government announced the LTA cash voucher scheme in lieu of the LTA exemption. 

What is the LTA Cash Voucher Scheme?

Under the LTA cash voucher scheme, an employee can avail the benefit of exemption under LTA by spending the ‘specified amount’ on some goods and services, instead of claiming the travel fare of the trips.

In order to claim the benefit under the LTA cash voucher scheme, the taxpayer or his/her family member should have spent on the purchase of goods and services with a GST rate of 12% or more. 

However, the rules regarding the LTA voucher scheme were notified in Budget 2021. The memorandum to the Budget 2021 includes details on how this scheme shall be available.

Conditions for Availing Benefits Under the LTA Cash Voucher Scheme

Let’s see how this works –

• This exemption shall be available for FY 2020-21.
• Availing of this scheme shall count as usage of 1 trip (out of 2) allowed in the block of 4 calendar years 2018-21
• The taxpayer or a member of his family should have incurred ‘specified expenditure’.
• This ‘specified expenditure’ should have been spent on the purchase of goods or services that attract a GST rate of 12% or more.
• Such a purchase should have been made between 12th October 2020- 31st March 2021.
• The exemption should not exceed Rs 36,000 per person or 1/3rd of the ‘specified expenditure’, whichever is lower.
• Payment for the expenses should have been made via electronic means to a business registered under GST and a ‘GST tax invoice’ should be available.
• In case you don’t avail of the scheme most employers either allow you to carry forward the amount to next year or pay it to you after deducting TDS on it.
• Availing of the LTA scheme would be considered as claiming 1 trip in the block of 4 years. Usually, LTA can be claimed for exemption twice under the block of 4 years. The current block is 2018-2021. 

Note that only those employees who receive LTA as part of their salary package can avail of this scheme. Also, note that if you have opted for the new tax regime, you will not be eligible for this scheme.

Example of How to Calculate Money to be Spent

How to calculate the ‘specified expenditure’ i.e. the amount that is required to be spent. 

(A) LTA as per salary structure = Rs 1,00,000 
(B) Taxpayer and family eligible under LTA = 4 Maximum benefit allowed Rs 36,000 x 4 = Rs 1,44,000 
Maximum tax benefit to be lower of (A) and (B).

Therefore money to be spent to claim tax benefit (3 times the eligible amount) = Rs 1,00,000 x 3 = Rs 3,00,000.
This amount must be proportionately reduced if less money is spent.

If Rs 3,00,000 is spent, the entire Rs 1,00,000 shall be tax free. This means you will be able to save Rs 30,000 in taxes by spending Rs 3 lakhs. Therefore, this is not a very attractive scheme.

Where to Spend LTA Money to Claim Exemption

Here’s a look at what all you can spend on.

Hence if you bought an AC, a refrigerator or a mobile phone  (GST rate applicable is 12% or more) in the specified period mentioned above, you can claim your LTA under the cash voucher scheme provided all other conditions are met. 

We request you to please check rates from suppliers before making a purchase and also make sure you receive a proper GST/tax invoice. If you have been intending to purchase one of the above goods and services, this tax benefit will help you.

Please note that LTA rules for claiming the above have been notified in Budget 2021.

Claiming Exemption Under LTA Cash Voucher Scheme 

As mentioned earlier, the LTA scheme was initially introduced only for the Central government employees and later on was also extended to private sector employees. Hence, most of the private sector employers would have deducted TDS on the LTA component of the salary.

If the employees were not able to claim the deduction under the cash voucher scheme prior to the end of the financial year, the same can be done at the time of filing of Income Tax Return (ITR). However, the taxpayer should ensure that all the specified conditions mentioned above are fulfilled to claim the exemption.

The taxpayer should have the GST invoice as well as payment proof while claiming this deduction. In case of claiming this exemption at the time of filing of ITR, the taxpayer will be able to claim a TDS refund on the tax deducted on the LTA component. 

Most of the employers would have carried forward the LTA exemption to the next year (In previous blocks one un-claimed LTA can be claimed the first year of the next consecutive block of years).

It is important to note that the taxpayers opting for the ‘New Tax Regime’ will not be able to claim the exemption under the LTA cash voucher scheme.