Tax Talk: Which is better for you? LTC cash voucher or LTA carry forward option

Under this, if an employee does not claim one or both journeys in a block of four years, he can carry forward one journey to the next block provided the journey is in the first year of the next block.

By Vinayak Iyer

The rules for the LTC Cash Voucher scheme, which was announced in October 2020, have been included in the Memorandum to the Finance Bill 2021.

LTC Cash Voucher Scheme
During 2020, due to the COVID-19 pandemic, such LTC (leave travel concession) related travel was not possible. The government introduced an alternate way to avail this exemption by procuring goods or services subject to below conditions:

Purchased goods or services from GST registered vendors should have 12% or more GST
Payment should be between October 12, 2020 to March 31, 2021 and digitally made
By fulfilling these, an employee can get exemption for least of the below:

a) Rs 36,000 per eligible person (family defined as per LTA rules) or
b) 1/3rd of the expenditure incurred or
c) The CTC eligibility of LTA

Points to consider
While the new scheme certainly provides benefits, the extent of the benefits may differ from one employee to another. So, two more points need to be considered:

1. If you opt for the new LTC Cash Voucher Scheme, it will be against one journey between 2018-2021.
2. So, if you were unable to travel in 2020, are there any other alternatives to the LTC Cash Voucher Scheme? The answer is Yes.

Another option is already available in the existing LTA rules (referred to as LTA carry forward option). Under this, if an employee does not claim one or both journeys in a block of four years, he can carry forward one journey to the next block provided the journey is in the first year of the next block.

The LTA carry forward option therefore presents the below scenarios:
One exemption each can be claimed in 2021 and in 2022 if no exemption was claimed from 2018-2020
One exemption can be claimed in 2021 or in 2022 if one exemption was claimed from 2018-2020
If both exemptions have been claimed from 2018-2020, you are not eligible for LTC cash voucher or LTA carry over option

To choose between LTC Cash Voucher Scheme and LTA carry forward option, evaluate the below:
1. What is your LTA eligibility as part of your CTC? Assume it is Rs 75,000
2. Will you be able to spend three times your LTA eligibility by March 2021 on eligible Goods or services (at least Rs 2,25,000 in the above example)?
3.How many eligible dependents do you have (as per LTA rules)? You should have minimum three dependents including self to get Rs 75,000 exemption in the above example.

If you spend less than three times your LTA eligibility or have fewer dependents, you will get less exemption.
However, under the LTA carry forward option, higher exemption may be available for the same amount incurred on travel in 2021 / 2022 (subject to LTA travel rules)as compared to the LTC Cash Voucher Scheme.

Conversely, if you believe that it is highly unlikely that you will be able to undertake LTA related travelling in 2021 and 2022, and you can incur the expenses by satisfying other conditions under LTC Cash Voucher Scheme, you can get the proportionate one third exemption. As per the Memorandum, the LTC Cash Voucher scheme is not available after March 2021. Therefore, you may want to look at the best suitable option to you based on the scenarios listed above.

The writer is director, Tax ACR, EY India.
The views expressed are personal