Scheme's exemption element not compatible with I-T plan based on reliefs foregone
An employee, who opts for the income-tax structure with lower rates subject to forgoing exemptions, will not be eligible for the Leave Travel Concession (LTC) cash voucher scheme announced by the Finance Ministry earlier this week.
“The new scheme has an exemption component and since the optional income-tax structure is designed in such a way that a lower tax rate will be possible on the basis of exemptions foregone, it would mean that anyone opting for the optional tax scheme is not eligible for the LTC cash voucher scheme,” a senior government official told BusinessLine.
The Finance Ministry will come out with a detailed circular on the new scheme. According to the Budget document, the condition for the concession rate is that the total income of the individual or HUF (Hindu Undivided family) is computed “without any exemption or deduction under the provisions of Clause (5) …. of Section 10 (of the Income Tax Act).” This Section sets out the components that will not be included in the total income for tax computation. Clause 5 deals with the value of leave travel or assistance received by or due to him/her from the employer after retirement from service or after the termination of his service.
The LTC cash voucher scheme, announced on October 12, prescribes cash payment in lieu of one LTC during 2018-21, in which an employee, opting for the scheme will be required to buy goods/services three times the fare and one time the leave encashment before March 31, 2021.
According to an office memorandum of the Expenditure Department, while TDS (Tax Deducted at Source) is applicable in the case of leave encashment, for the LTC fare component that is to be reimbursed in lieu of actual travel exemption will be allowed as is now available for LTC fare.
“The legislative amendment to the provision of the Act shall be proposed in the due course,” the memorandum read while making it clear that TDS shall not be required to be deducted on the reimbursement of the deemed LTC fare.
Another official said that LTC needs to be claimed or it will lapse after the block year. There is no provision to get the cash after deduction of tax without any travel. But as this is a common practice in the private sector, and in order to provide an enabling environment for the private sector, the government is working on a circular, the official said.
As of now, it is difficult to assess how many salaried people have opted for the new income tax return scheme as the last date to opt for it will be the last day for filing the income tax return for AY2021-22.
Private sector employees
Amit Maheshwari, Tax Partner, AKM Global, said that, according to the notification, tax concession will be allowed for state government and private sector employees, too, who are currently are entitled to LTC, subject to the guidelines of the Central government scheme. Therefore, “it is up to the private sector employers to take up the opportunity to provide this benefit to their employees as they can review their employee compensation structure to enable their staff take advantage of the announcements,” he said.
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