7th Pay Commission: This new window allows central government employees to save money—here is how
7th Pay Commission: Even as central government employees are waiting for their Dearness Allowance (DA) announcement due from January 2021 and their DA restoration, Centre has this piece of good news for them.
Government has decided to allow all 7th Pay Commission (7th CPC) beneficiary employees in the central government and the state government to claim their new insurance policy premium in the LTC Scheme to save their money outgo under income tax.
LTC scheme relaxation
Earlier, on account of restrictions in travel due to the COVID-19 pandemic, the central government had declared relaxation in the (Leave Travel concession) LTC Scheme that allows the salaried beneficiaries that includes central government employees and the state government employees where 7thn CPC (Central Pay Commission) or Seventh Pay Commission is implemented, to claim income tax benefits on expenses made between 12th October 2020 to 31st March 2021 on purchase of goods and services that attract GST rate of 12 per cent or more instead of travel expenses. Source: PTI
Life insurance also included in the LTC Scheme
Importantly, LTC Scheme beneficiaries among central government servants (CGS) and state government employees should know that life insurance is also included in the LTC Scheme among the services mentioned above. Source: Pixabay
New insurance window for government employees
Speaking on the new insurance window for central government employees and state government employees who have exhausted Section 80C limit of the Income Tax Act, Profitmart's Pankaj Mathpal said, "The income tax benefit under the LTC Scheme will be allowed on premium paid for new policies issued between 12th October 2020 to 31st March 2021 only and not on renewal premium. So, to avail the benefit, central government employees and state government employees will have to purchase a new life insurance policy – be it a term plan or a ULIP or an annuity or an endowment plan." Source: PTI
'7th Pay Commission beneficiaries can still claim tax benefits even if 80 C limit exhausted'
However, Pankaj Mathpal said, in case the income tax benefit has already been claimed under Section 80C, then in that case the tax benefit can’t be claimed under the LTC Scheme. So, in case a Seventh Pay Commission beneficiary is a central or state government employee whose 80C limit is exhausted, he or she may still claim benefits under the LTC Scheme. Source: PTI
Tax benefit calculations
Pankaj Mathpal of Profitmart went on to add that if a 7th CPC beneficiary government employee purchases a single premium plan within the eligibility period, he or she would get income tax benefit on the entire premium or its maximum LTC benefit amount, whichever is lower. But for regular premium policies issued in that period, they will get benefits on the amount of premium paid till 31st March 2021, provided the aggregate amount is within the LTC limit. Source: Reuters