Leave Travel Allowance or LTA allows individuals to claim tax exemption for a trip made within India for the taxpayer and his/her family. LTA can be claimed as tax exempt twice in a block of 4 calendar years. This allowance can be claimed via your employer by submitting tickets for a trip undertaken in India.

More details around how LTA exemption can be claimed is available here.

Normally employees are able to undertake at least some trips and are able to save taxes on the LTA portion. Due to the covid pandemic, hardly anyone has been able to claim LTA in FY 2020-21. To help employees save some tax on the LTA portion and to help boost sales of certain goods and services, the government launched the ‘LTA cash voucher scheme’. Under this scheme, taxpayers can claim an exemption on LTA by spending a specified amount on certain goods without undertaking any trips.

As part of Budget 2021, the government has extended this benefit to all public and private sector employees.

However, the rules regarding the LTA voucher scheme have not yet been notified. The memorandum to the Budget 2021 includes details on how this scheme shall be available.

LTA Cash Voucher Scheme Details

Let’s see how this works -

  1. This exemption shall be available for the FY 2020-21.
  2. Availing for this scheme shall count as usage of 1 trip (out of 2) allowed in the block of 4 calendar years 2018-21
  3. The taxpayer or a member of his family should have incurred ‘specified expenditure’.
  4. This ‘specified expenditure’ should have been spent on purchase of goods or services that attract a GST rate of 12% or more.
  5. Such a purchase should have been made between 12th October 2020- 31st March 2021.
  6. The exemption should not exceed Rs 36,000 per person or 1/3rd of the ‘specified expenditure’, whichever is less
  7. Payment for the expenses should have been made via electronic means and a ‘tax invoice’ should be available.
  8. 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.

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.

LTA as per salary structure = Rs 1,00,000 (A)
Total members = Taxpayer and family eligible under LTA = 4
Maximum benefit allowed Rs 36,000 x 4 = Rs 1,44,000 (B)
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. Which means you will be able to save Rs 30,000 in taxes by spending Rs 3lakhs. 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.

 

Goods and services with rate of 12% or more

Mobile Phones and Laptops

18%

Air Conditioners and Refrigerators

28%

Hotels 

18%

Interior Decorator Services

18%

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 not yet been notified.