During the first wave of COVID-19 in 2020, the government had announced certain relief measures for salaried taxpayers. These included the option claim tax exemption on their Leave Travel Allowance (LTA) balance.
Normally, taxpayers are able to claim tax benefit on LTA for a vacation that has been taken anywhere within India. However, due to the pandemic and periodic lockdowns, taxpayers could not travel. In such cases, they may have to pay tax on the LTA component of their salaries. To help salaried taxpayers avoid this situation, the government announced an LTA cash voucher scheme. This scheme has been notified on May 5, 2021.
What is the LTA cash voucher scheme?
Under the LTA cash voucher scheme that is applicable for FY 2020-21, those with an LTA component in their salary, can save tax on taxes by spending a ‘specified amount’ on certain goods, without having to make any trips.
Let’s see in detail how this scheme works. The taxpayer or a member of his/her family should have incurred the ‘specified expense’. It should have been spent on purchase of goods and services with a GST rate of 12 percent or more. The purchase should have been made between October 12, 2020 and March 31, 2021. Also, the exemption should not exceed Rs 36,000 per person or one-third the ‘specified expenditure’, whichever is less. Payment for the expenses should have been made via electronic means to a GST registered business and a ‘GST tax invoice’ should be available.
Usually, LTA can be claimed as exempt twice in a block of four calendar years, the ongoing block being 2018 to 2021. Availing of the LTA scheme would count as claiming one of the trips in the said block of four years. So, taxpayers can claim this option only once during the four-year block from 2018 to 2021.
How do I claim this exemption?
Employers are bound by law to deduct TDS before paying your salary. Your employer would have already deducted TDS on your salary income for FY 2020-21. Some employers could not allow the LTA voucher scheme since it had not been notified at the time they were required to deduct TDS for FY 2020-21. If you haven’t been able to claim the LTA scheme through your employer, you can claim it at the time of filing your income tax return. Do make sure you meet all the specified conditions and report the LTA exemption that you want to claim in your income tax return properly. You must also retain all the supporting documents: the tax invoice and the payment proof. If you claim this scheme at the time of filing your return, you will be able to claim a refund of TDS deducted on the LTA balance (as per the eligibility criterion specified above).
Most employers would have already done one of the two things – deducted TDS on your LTA balance and paid it to you as salary for FY 2020-21 or allowed you to carry forward the LTA balance to the next financial year for making a claim. Also, it is worthwhile noting that those who opted for the new tax regime will not be eligible for this scheme.
If you bought a mobile phone, an AC or a refrigerator in the specified period, you may be able to claim your LTA as exempt assuming you meet all the conditions listed above, as all of these goods attract a GST rate of 12 percent or more.