Cash allowance in lieu of LTC

Cash Allowance In lieu of Leave Travel Concession

vide Notification No. 50/2021 dated May 05, 2021

Sub rule 1(A) and 1(B) inserted to Rule 2B of Income Tax Rules 1962 as per which, specified employees, who avails any cash allowance from his employer in lieu of any travel concession or assistance for himself and the members of his family, subject to the fulfilment of conditions prescribed, shall be eligible to claim an exemption for an amount equal to lower of the following:

  • INR 36,000 per person for himself and his family members; or
  • One-third of the specified expenditure incurred by him during the specified period

Conditions prescribed for availing such exemption are as follows:

  • Option is exercised to claim such exemption in respect of one unutilised journey during the block of 4 calendar years commencing from the Calendar Year 2018.
  • Payment is for Specified Expenditure incurred by an individual or any member of his family to a registered person in GST during the period commencing from 12 October 2020 and ending on March 31, 2021.
  • Payment for such expenditure is made through specified digital mode i.e., by way of an account payee cheque/bank draft, credit/debit card, etc. or other mode as prescribed under rule 6ABBA
  • A tax invoice is to be obtained for such expenditure in the name of self or any member of his family from a person registered under GST
  • Expenditure is made on goods or services which are liable to GST at an aggregate rate of 12% or above.

Illustration explaining above exemption is as follows:

(a)Cash allowance received during the yearINR 3,00,000
(b)Eligible Family Members          4
(c) Actual expenditure*incurred by employee and his family membersINR 3,60,000
(d)Exemption shall be lower of the following:
INR 36,000 per person INR 1,44,000
1/3rd of actual expenditureINR 1,20,000
(e)Total exemption allowed as per the rules INR 1,20,000

*Subject to the conditions prescribed for such expenditure as per the above rules.

CBDT had earlier announced cash allowance in lieu of Leave Travel Concession(LTC) fare during FY 2020-21. Further, the Finance Act, 2021 amended Section 10(5) of the Income-tax Act, 1961 (IT Act) to provide an exemption in respect of cash allowance received in lieu of LTC.

The above inserted sub-rules shall be applicable for Assessment Year 2021-22.

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