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Accounting, Finance, Taxes

Leave Travel Concession (LTC)

Income Tax Exemption of Rs. 36,000 per family member to a Salaried person for the Financial year 2020-2021 (also available to Private Sector Employees)

Many Salaried employees get Leave Travel Concession from their Employers which is exempt to the extent it is actually spent on travelling. LTC which could not be spent is taxable in the hands of employee. However, in view of the COVID-19 pandemic and resultant nationwide lockdown, many employees were not able to travel and were thus not able to avail the benefit of LTC for the FY 2020-2021.

Thus, the Government has provided for Income tax exemption on account of value in lieu of Leave Travel Concession whereby a salaried employee can claim tax exemption merely on purchase of certain goods or services by the employee or their family members.

  1. Amount of Exemption: 1/3rd of amount spent on purchase of goods or services from GST Registered vendors / service providers on which GST Rate is 12% or more (i.e. 12% or 18% or 28%).
  2. Maximum amount of exemption: 36,000 per family member. (Eg. If 3 members in family – then Exemption of Rs. 1,08,000)
  3. Expense / Purchase should have been made between 12th October, 2020 to 31st March, 2021.
  4. Payment should be made through digital mode. (i.e. it should not be in cash). It is very important to note that that employee can also claim this exemption on purchases made by any family member of the employee.
  5. The employee exercises an option for the deemed LTC fare in lieu of the applicable LTC in the Block year 2018-21.
  6. Employee should obtain GST Invoice from the vendor / service provider.
  7. Family Member means spouse and children of the individual. Family also includes parents / brother / sister dependent on the individual.

Effect of this Tax Exemption on Income tax liability of a salaried person:

Example: If a salaried person or his / her family member purchases a mobile or AC of Rs. 45,000. An amount of Rs. 15,000 (1/3rd of Rs. 45,000) will be reduced from their total income. Accordingly, income tax will be payable on such reduced income.

Example : A salaried person purchases Computer/Laptop of Rs. 75,000 + GST @18%. i.e. Rs. 88,500 (inclusive of GST). Amount of Rs. 29,500 (being 1/3rd of Rs. 88,500) can be claimed as exempt. Thus, the total income will be reduced by Rs. 29,500 and income tax will be payable on such reduced income.