Income tax (15th Amendment), Rules, 2021 – Cash allowance received in lieu of LTC in COVID pandemic.

 Income tax (15th Amendment), Rules, 2021 – Cash allowance received in lieu of LTC in COVID pandemic.  Compliances
Jul 082021
 

The CBDT has amended Rule 2B to provide an exemption in respect of cash allowance received in lieu of leave travel concession (LTC).

Due to the COVID-19 pandemic and the nationwide lockdown, employees who had not been able to avail of LTC in the block of 2018-21 were allowed to claim the exemption in respect of cash allowance subject to fulfillment of certain conditions.

Amendment effective from – from the 1st day of April 2021, i. e., and amendment will be applicable for the incomes earned in the financial year 2020-2021.

Amendment:

For the assessment year beginning on the 1st day of April 2021, where the individual referred to in sub-rule (1) avails any cash allowance from his employer in lieu of any travel concession or assistance,

The amount exempted under the second proviso to clause (5) of section 10 shall be the amount,

  • not exceeding thirty-six thousand rupees per person, for the individual and the member of his family, or
  • one-third of the specified expenditure,

whichever is less,

subject to fulfillment of the following conditions, namely:-

 

Conditions:

  • the individual has exercised an option to avail exemption under the second proviso of clause (5) of section 10, in lieu of the exemption under clause (5) of section 10 in respect of one unutilized journey
    • during the block of four calendar years commencing from the calendar year 2018; (i.e. 1st January 2018 to 31st Dec 2021)

 

  • the payment in respect of the specified expenditure is made by the individual or any member of his family to a registered person during the specified period; i. e., from the 12thday of  October 2020  and ending on the 31stday of March 2021.

 

  • the payment in respect of the specified expenditure is made by an account payee cheque drawn on a bank or account payee bank draft or use of electronic clearing system through a bank account or through such other electronic mode as prescribed under rule 6ABBA; and

 

  • the individual obtains a tax invoice in respect of specified expenditure from the registered person referred to in clause (ii).

 

Expenditure for which exemption is allowed u/s 10(5):

specified expenditure: means  expenditure  incurred  by  an  individual  or  a  member  of  his  family:

  1. during a specified period, i. e., from the 12th day of  October 2020  and ending on the 31st day of March 2021.
  2. on goods or services, which are liable to tax at an aggregate rate of twelve percent. or above under various Goods and Services Tax (GST) laws and
  3. goods are purchased or services procured from GST registered vendors or service providers

 

Impact of above amendment: Now the employees availing LTC have to exercise two options as below:

  • Whether individual employee opts to avail benefit under alternative tax regime. If an individual opts for the alternative tax regime under section 115BAC, exemption pertaining to LTC is not available to him at all. This option shall be chosen at the time of filing of the return.
  • Now employees have to choose between, to claim LTC in section 10(5) or under 2nd proviso to section 10(5). Under section 10(5) expenditure shall be exempted based on expenses incurred by the shortest distance method or under the 2nd proviso, the expenditure shall be exempted based on actual expenditure incurred multiply by a member in family traveled. This option must be selected up to 31st Dec 2021 for the expenditure incurred up to 31st Mar 2021. 

Thus, the net impact of this amendment is an individual employee for assessing income for FY 2020-21 can take benefit of travel made up to 31st March 2021 instead of expenditure incurred up to 31st Dec 2020.