Understanding the LTC cash voucher scheme

The government has announced a scheme offering tax-free payment of eligible LTC allowance towards goods and services without the need for them to travel. 

This benefit will be available until March 31, 2021.

In lieu of one block of the LTC during 2018-21, employees will receive a cash payment, which is tax-free under certain conditions. 

The conditions that must be satisfied by an employee to avail the tax-exempt encashment of travel fare amount are as follows:

• Buy goods and services worth three times the tax-exempt amount paid before 31.3.2021.
• Spend the money on buying items attracting GST of 12% or more from GST registered vendor and purchase must be in digital mode.
• GST invoice will have to be produced.
• Scheme open to the private sector wherever the employers currently offer LTC.
• Scheme also open to PSUs, PSBs and state government employees.
• Payment of LTC fare in 3 at-rate slabs depending on the class of entitlement of government employees.

The employees will not be able to avail the LTC in the 2018-21 year block due to the ongoing Covid-19 pandemic. This is where the LTC will benefit government employees.

This is a one-time scheme and payment will be only in lieu of one LTC during the block of four years 2018-2021.

The leave encashment is also tax-free, provided the amount is spent before March 31, 2021.

It has to be noted that the GST rate on such purchases/services should be 12 per cent or more – typically expenditure on white goods such as refrigerators, washing machines, mobiles, two-wheelers/ four-wheelers other than electric vehicles and most services would fall under this category.