What is the LTC Cash Voucher Scheme?

In October 2020, Finance Minister Nirmala Sitharaman announced Leave Travel Concession (LTC) Cash Voucher Scheme to boost consumer demand across India. Due to the lockdown and travel restrictions caused by COVID-19, people were not able to travel much and thus were unable to claim tax exemption on the same. This scheme works as a replacement for the original leave and travel concession given to employees in a year.

With this scheme, employees will get usual LTC tax benefits as it offers employees a cash amount equal to the eligible LTC fare exempted from the tax. The benefit payout will depend on the allowed individual Leave Travel Allowance (LTA) limit. Initially, this scheme was only available for central government employees. However, employees of the private sector, PSUs, state-owned organizations and state governments can get the benefits of the LTC Cash Voucher Scheme too.

On this page, we will discuss several aspects related to the LTC Cash Voucher Scheme. Let’s start without any further ado.

Conditions to Fulfill to Avail the LTC Cash Voucher Scheme

Employees will need to fulfill the following conditions to avail of the LTC Cash Voucher Scheme.

1. Individuals should have purchased the goods and services (2-wheelers, 4-wheelers, household appliances, mobile recharges, broadband payments, etc.) from GST-registered vendors.
2. The goods and services purchased by employees should have a minimum goods and services tax rate of 12%.
3. The purchases should have been made between October 12, 2020, and March 31, 2021, as the LTC scheme was only available for the year block of 2018-21.
4. Employees should also spend their 10-day leave encashment money to get the maximum tax exemption.
5. Individuals should make the purchases through digital modes of payment only as cash payment will stand ineligible for a tax deduction.
6. Invoices of purchased goods and services should contain details of the vendor, GST number and GST amount paid. You can also submit the invoices in the name of family members.

What is the LTC Fare Slab?

To get the benefits under the scheme, employees should spend three times the stipulated LTC fare on the purchase of goods and services. The maximum LTC fare will vary from one category of employee to another. To know the LTC Fare Slab, check out the below table.

Let’s understand this with an example. Suppose an individual is eligible for an AC Tier-1 train ticket to a destination of her choice anywhere in India. Based on the slab mentioned above, she will get a round-trip fare worth INR 6,000 per person. For a family of three persons (herself, husband and child), the overall amount will be INR 18,000.

So, to get a cash payout of INR 18,000 under LTC Cash Voucher Scheme, she will need to spend INR 54,000 (18,000*3).

Additional Points Related to LTC Cash Voucher Scheme

You can check a few additional points related to the scheme mentioned below.

1. The employees will need to spend 100% of the leave encashment value to get the benefit under LTC Cash Voucher Scheme.
2. Individuals will get 100% of the leave encashment amount and 50% of the travel fare amount in their respective bank accounts in advance. The remaining settlement will depend on the proof of purchases of goods and services (production of receipts).
3. The claim under the scheme (with or without the advance) will be settled within the current financial year.

Is LTC Cash Voucher Scheme Applicable for Health and Life Insurance Plans?

Yes! The LTC Cash Voucher Scheme would encourage people to buy health and life insurance. The reason being you can get the reimbursement (as per the limits under the Income Tax Act, 1961) of the premium paid towards policies purchased between October 12, 2020, and March 31, 2021.

So, you can purchase a health insurance plan (to protect your finances during a medical emergency) or a simple term insurance plan (to protect your loved ones in an eventuality) to be eligible for this cash voucher scheme.