Opting for a New Tax Regime will affect Leave Travel Concession Cash Voucher Scheme?

Last Updated On: Oct. 20, 2020, 8:53 a.m.
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Opting for New Tax Regime will affect the benefits of LTC Cash Voucher?

Introduction:

CBIC has introduced Leave Travel Concession (LTC) for the Central Government and Public sector employees. An employee working in the Central Government and Public Sector is eligible for LTC and leave encashment of 10 days for the travel to home town or any other place twice in a block of four years. Leave Encashment is taxable but the cost of the ticket is exempted.

From this financial year, a salaried person/individual has an option to choose the new tax regime without any tax exemptions and deductions.

In other words, Individuals are given an option to opt for the New Tax Regime. By opting for New Tax Regime, Individuals will have to sacrifice certain exemptions/deductions while filing their Income Tax Returns.

Individuals planning to opt for the old tax Regime can avail of this benefit of the Leave Travel Concession (LTC) Cash Voucher Scheme.

If the Individual opts for the New Tax Regime then, he/she will not be able to avail of the benefit of Leave Travel Concession Travel(LTC).

As per Income Tax law, employees can claim tax-exempt payment of LTA/LTC (if provided by employer) equal to the fare of domestic travel subject to limits and conditions.

To claim this tax exemption under section 10(5) of the Income-tax Act, 1961, an employee is normally required to provide proof of his travel. The government has introduced a LTC/LTA cash voucher scheme to allow employees eligible for LTC/LTA to claim tax-exempt reimbursement of similar amounts subject to certain limits and spending conditions.

Any individual opting for the tax regime prescribed under Section 115BAC of the Income-tax Act will not be able to claim the tax exemption benefit offered under the LTC cash voucher scheme. Reason, why he cannot claim, is New tax regime is offering lower tax rates but without most of the tax exemptions, including LTA, which is available under the old tax regime.

Tax Experts states that they have no clarity about the above-mentioned statement i.e if the benefit can be availed for opting the New Tax Regime under section 115BAC. But until it is specifically permitted by the government that is benefit will be not available under the New Tax Regime.
 

Points to Remember:

In case any person opting for the new tax regime, the LTC cash voucher scheme does not specifically mention whether the tax exemption would be available under section 115BAC.

As per Section 115BAC, no exemption is provided under Section 10(5) related to leave travel concession is available for individuals opting for a new tax regime. And the LTC cash voucher scheme is an opportunity that is created for the taxpayers to claim the benefit of LTC by way of incurring certain specific consumer expenditure instead of undertaking a travel journey.

Another thing to be remembered by any employee who is working in a government and a private sector the LTC scheme is different.In case of a government employee, he/she is required to take leave and travel to claim the LTC amount and avail the tax exemption, otherwise, it lapses.

In case of a private sector employee, LTC or LTA is part of the CTC and paid as a taxable allowance unless an employee undertakes the travel and submits fare bills to his/her employer, with respect to rules and conditions of the Income Tax Act.

Therefore, A Government Employee cannot claim LTC at all, tax-exempt portion and non-exempt amount, unless he travels. In case of the private sector, if the employee cannot avail tax exemption for LTA/LTC until he travels but can get LTA amount as tax payable.
 

Conclusion:

However, Individuals who have opted for the old tax regime can benefit from the scheme of Leave Travel Concession Cash Voucher, but who have opted for the new tax regime cannot avail or enjoy the benefit of this scheme.
 

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