How to claim LTC Cash Voucher exemption in your income tax return

In October 2020, due to the covid-19 pandemic, the government announced an LTC cash voucher scheme that allowed salaried taxpayers eligible for LTC/LTA to claim the allowance tax exempt without travelling by purchasing goods and services as per the scheme’s conditions.

As per the government, individuals having LTC/LTA in their salary package would have been unable to travel and claim income tax exemption on the travel tickets due to the pandemic induced lockdown. As an alternative, to enable such individuals to claim their LTC/LTA amount as tax exempt, the government launched the LTC Cash Voucher scheme.

As per this scheme, an individual had to purchase goods and services attracting GST of 12% or more by digital means between October 12, 2020, and March 31, 2021. The individual would then be allowed to claim one third the amount of the bills as tax exempt LTA/LTC without submission of travel proof. If you are someone who has availed the LTC Cash Voucher scheme in FY 2020-21, here is how you can claim the money received under it as tax exempt while filing your ITR.

Maximum amount that can be claimed
To be eligible to claim the LTC Cash Voucher exemption, there are certain conditions that had to be met. Once these conditions were satisfied, the individual could claim maximum of one-third of the amount spend or up to Rs 36,000 per family member, whichever is lower by submitting bills (of purchases as specified in the scheme) to the employer.

Let us say you purchased a tab or a laptop for Rs 39,000 (inclusive of GST at 18%). The amount you will be eligible to claim tax exemption for will be lower of one of the following:
a) One-third of amount spent, i.e., one-third of Rs 39,000 = Rs 13,000
b) Rs 36,000

Thus, in the above example, you will be eligible for maximum tax exemption of Rs 13,000. “The maximum tax exemption available is Rs 36,000 per person. Thus, a family of four can claim total maximum tax exemption Rs 1.44 lakh,” says Sujit Bangar, Ex-IRS officer and Founder, Taxbuddy.com, an ITR filing website.

He adds that if a taxpayer has the made payment in cash, then he/she will not be able to claim tax-exemption under the LTC Cash voucher scheme for that particular payment.

How to claim LTA Cash Voucher scheme in ITR form
If you have submitted eligible bills to your employer, then the employer should not have deducted tax on the amount paid to you from your LTA/LTC against those bills. This amount would also be shown claimed as tax exempt in your Form 16.

Bangar says, “Tax exemption under LTA Cash Voucher scheme will be claimed under section 10(5) of the Income-tax Act, 1961. The amount of tax-exemption you are eligible for claiming will have to be shown in the exempted income schedule of the income tax return form.”

Conditions for the LTC cash voucher scheme
To be eligible to claim the LTC Cash Voucher tax exemption, these are the conditions that were to be met:
a) An employee was required to spend three times the amount of deemed LTC fare on the purchase of goods and/or services having GST of 12% or more;
b) Purchase of goods and/or services had to be made between October 12, 2020, and March 31, 2021;
c) Payment for goods and/or services had to be made via digital modes such as cheque, UPI, mobile wallets etc. Cash payments were not allowed; and
d) Individual was required to -collect the invoice having GST number of the seller and GST amount paid. These invoices were to be submitted to the employer to claim the benefit. Individuals were allowed to submit the invoices in their family member’s name.