LTA Cash Vouchers, Good News for Employees, a Headache for Employers!

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LTA Cash Voucher

Considering the pandemic, all travel for business or leisure has taken a halt. With a stream line of income already disturbed for a decent part of the workforce, employees have been calling foul being unable to take benefit of LTA tax benefits. Some of employees’ prayers have come to answer with recent announcement made by our #financeminister Nirmala Sitharaman. She introduced a new LTC cash voucher scheme that will allow employees to purchase goods and services in lieu of the tax-exempt portion of the Leave Travel Allowance.

This voucher is beneficial for all looking to enjoy LTA tax exemption benefits without making the actual travel. As per the announcement made, employees can enjoy the tax benefits under LTA by submitting GST invoices for any goods procured or services enjoyed on or before March 2021. Though the same comes with following caveats: 

  1. The employee needs to produce GST invoices for goods or services for three times the amount for which LTA is received. 
  2. Only those invoices will be eligible for consideration that attract 12% or more GST from GST registered vendors.
  3. The money on goods or services should be spent between 12th Oct, 2020 and 31st March, 2021.
  4. All payments must be paid via digital mode.

Just to elaborate a little further, if an employee is entitled for an INR 30,000 of LTA every year, the employee would be required to present an INR 90,000 of GST bills that attract 12% or more GST. It can really come handy for someone who has bought an Iphone recently or looking to buy any other luxury household items including a car. He can end up reducing the taxable income by INR 30,000. In case an employee only has GST invoices for a partial amount, say 45,000, then one third of this, i.e. INR 15,000, would be exempted from taxable income. 

Is the scheme available for all private sector employees?

The scheme will not be available for all the employees who have opted for the new alterNate tax regime offering concessional tax rates in lieu of forgoing major exemptions and deductions. The scheme does not hold them to any disadvantage as these employees were opted out of enjoying LTA benefits, anyway.

As an employee, should you opt for LTA cash vouchers?

It makes sense to leverage the scheme to your advantage in case you have some expenses planned in near future. The scheme offers to cover a wide range of products from Cars, Phones, Furnishing and a lot more that have carved out space in the list of necessities in urban lifestyle. It will even make more sense if you have not enjoyed even one LTA claim in the LTA cycle ending next year. 

No doubt Nirmala Sitharaman has been open and unconventional in serving solutions to salaried workforce in helping them reduce tax liability, be it an alternate tax regime for lower income employees or relaxation in employer contribution or PF for this new LTA cash voucher scheme to combat the unusual situation, but these ad hoc changes leads to a lot of uncertainty and challenges in processing of on-time payroll. A top-notch payroll software with upgraded features can be used to combat such impediments.

In order to ease and automate the challenges, HROne team is rolling out a solution to digitize the complete process for employees to claim for LTA cash vouchers. 

What else do you need to know in case you are an HR professional and processing payroll manually or using any other HRMS?

Most of the reads and illustrations around the LTA cash voucher available are missing the fact that the income that can be made tax free under this section is limited to INR, 36000 per family member. In case there are 3 more family members in addition to the bread earner, then the employee would be eligible for INR 1,44,000 (36,000*4) to be exempted from the income. In order to enjoy this, the individual will have to submit eligible worth INR 4,32,000 in his name. Well, this can really come in handy if a family is planning to buy a car and could, in turn, mean buying a car at a discount of INR 43,200 considering the employee falls in the highest tax slab.

HRs need to ensure that all the GST invoices are in the name of a salted employee who is looking to enjoy the benefits. Also, while calculating the tax-free limit of LTA cash vouchers, spouse, parents and dependants can be considered as individual family members.

Payroll team also needs to vet that all invoices being considered attract 12% or more GST and mode of the payment for goods or services rendered was online. 

With the payroll headaches being taken care of by HCM advents like HROne, the scheme looks like a win-win from all quarters. The scheme is not just innovative but economically and socially engineered to balance any tax relaxations being offered to employees be offset by GST collections. The scheme is expected to provide a stimulus to business and economy in these torrid times.

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Magnum Gupta

Magnum is Product Manager for HR-One. He is a data scientist from ISB and a Six Sigma Black belt. He comes with ten years of strategic consultancy experience with product based companies in product implementation and absorption for clients like BMW, VW, Dell, Coke, GM etc. He is committed to revolutionise HR processes.

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