the finance minister announced changes to the attractive LTC scheme (leave travel concession cash), allowing government and private sector employees to claim the LTC fare exempt from income tax.
what is it?
the LTC scheme originally allowed for tax exemption on the expenses for travel (air, rail or bus fare) to any place in India.
since travelling is not a preferred option for most in the midst of this pandemic, the government has revised the conditions to allow tax exemption on digital spends (up to 1/3rd of the amount you spend via cheque, demand draft, credit cards, UPI, and wallet payments) instead of travelling (only for the current financial year ending on March 31, 2021).
this is looking out for citizens done right.
since it’s a tax exemption, there are certain conditions that will need to be fulfilled to make a claim:
1. first off, ensure with your employer that your pay structure has a component of “LTA spends” to make a claim
2. you will have to provide your employer with invoices for digital purchases made between October 12, 2020, and March 31, 2021.
3. the spends called out in the invoice need to carry a GST value of 12% or above.
4. you can claim up to ₹36,000 per dependent in your family or the amount allocated under the “LTA spends”, whichever is lower.
5. only spends classified as digital payments are eligible: cheque, demand draft, credit cards, UPI, and wallet payments are eligible while cash payments are not.
6. the employee has to claim this reimbursement via the employer on submission of bills, and this exemption cannot be claimed while filing ITR.
while these are the essential callouts, we’d recommend contacting your employer to learn more about how you could claim this exemption.
if your employer does allow for it, utilising the LTC scheme is a great way to save up on income tax while you indulge in shopping.
and we don’t think there really is a better way to start the year.