Ever dreamed about a time in the Indian Tax system (IT) wherein you could save more tax on your earnings by investing for your own essential purchases? That too, by investing is some existing IT brackets that give you a bigger tax-break this financial year (FY 20-21), up and above the defined 80C (1.5 Lacs), 80D (25K for under 60 years of age), etc. section limits as laid out by the IT Department of India. It’s possible! It is Section-10 that now offers you a widened advantage.
Here’s your chance! Considering the pandemic hit economy & a bid to boost consumption and sentiments of the private employees (after the central government employees were given the benefit of this in Oct-20), the Finance Ministry has been able to income tax exemption benefits of Leave Travel Concession (LTC)/ Leave Travel Allowance (LTA) cash voucher scheme to all private employees in India.
What do you need to do? Get to know your total LTA allowance for the 4-year block (2018-2021) from your employer, spend in equivalent of minimum 3 times of that for insurance products (ONLY with the online purchase) and then just submit the digital copies to claim the exemption as the filing of ITR happens. Note: All purchases that have 12% or above GST (Goods & Services Tax) implied on them, qualify for the highest exemptions for all spends up till 31-Mar-2021. This means all insurance products including: Life Insurance covers, base Medical covers, Mediclaim Top-ups, Accidental Riders, Temporary Disability & Total Permanent Disability, Corona Covers, etc. for you or your family are all under this. Note: You could purchase single or multiple products as well.
Example: Generally, 40K is the LTA given to you in every 2 years which means that you have to be able to spend INR 1.2 Lacs ( (i.e. INR 40K multiplied by 3) in total to get tax exemptions under this section (inclusive of GST). Note: The upper limit for claiming tax exemptions for this year is fixed at a maximum of INR 1.08 Lacs (i.e. INR 36K upper cap of LTC/ LTA multiplied by 3 times). This includes the GST spends also. If you spend lesser than 1.08 Lacs, say INR 90K, you would then qualify for reduced tax exemptions pro-rata basis of INR 30K for this year (which is INR 90K divided by 3). This literally means that basis your tax slabs (even if you are at the least @5% or highest @30%), your tax savings could be directly between 5.5% to 9.5% – which definitely become pure savings!
Further, another important advantage is that you save your leave encashment (which otherwise you would’ve lost if you took leaves to do domestic travel with your immediate family to claim LTC/ LTA). Depending on how your employer would treat this, you could encash them also – as a bonus! And let’s not forget other sundry expenditure that would’ve happened while you would have been on travel.
Technically, you may consider these savings as a ‘direct discount’ on your purchase, a ‘vital purchase’ that may have been held up at the back of your mind till now, till when this gift from the finance ministry came in. This opportunity just serves the purpose to go for that purchase now within the next week itself!
You, however, have to be wary of the fact that any existing insurance premium payments (renewals) would NOT qualify for this exemption and continue to be tax-treated as normally in 80C & 80-D exemption of yours. Interestingly, this scheme was opened to private employees in Nov-20 only, but the employers kept it under wraps will when they got certain clarifications from the CBDT department (Central Bureau of Direct Taxation) on the LTC/ LTA cash voucher scheme, which finally, have been notified now.
If you were thinking to travel domestically and produce bills to claim exemptions internally with your employer, realistically does not seem possible in the current era of Coronavirus. Rather, you have a better alternative now to purchase the essential Life Insurance & Health Insurance (also known as ‘mediclaim’) covers and getting a much valid reason to claim exemption.
You save tax of a maximum INR 36K for this year clearly!
If you wish to seek more clarity and know all the products that qualify in insurance under this tax extension scheme, please drop in a query to us at:
EMAIL: info@bigrisefinance.com
OR call us at: +91 96501 53331, +91 98182 46300
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