Leave Travel Concession (LTC) provides tax free reimbursement of round fare twice in a block of four years – once for visit to home town and once for visit to any other destination. Such an incentive encourages employees – especially government employees – to travel, which on the other hand boosts the tourism sector.

However, due to Covid-19 pandemic, travel is not preferred currently. On the other the economy is on the slide due to low demand for non-essential goods.

The Scheme

To create a demand pool the government has offered its employees LTC Cash Voucher Scheme, where employees may get cash in lieu of LTC by spending 3 times the travel fare as per the permitted slab and get the fare reimbursed along with leave encashment.

The scheme is also available for employees of Public Sector Banks (PSBs) and Public Sector Undertakings (PSUs). State Governments and private sector companies may also offer the scheme to their employees.

“The scheme would enable the employees to avail cash payments in lieu of LTC during 2018-21 along with leave encashment. This may prove beneficial for the taxpayers who would have been otherwise unable to claim the LTC tax exemption benefit which requires them to undertake actual journey for claiming exemption and the current pandemic situation poses difficulties in undertaking any travel,” said Dr. Suresh Surana, Founder, RSM India.

Generating Higher Demand

But to create higher demand, the government has decided that the spending should be 3 times the permitted fares on non-essential goods having higher GST.

“The scheme is applicable only on satisfaction of certain conditions which requires the employees to buy goods or services which would be three times the fare and one time leave encashment. Moreover, such purchase needs to be made via digital mode only on or before March 31, 2021 only from a registered vendor and the goods and services, which are to be purchased should be subjected to a GST of 12 per cent or more. Thus, this may pose a hurdle as the consumer is expected to spend 3 times the fare and one time leave encashment,” said Dr. Surana.

Tax Benefit

One of the attractive parts of the scheme is that by purchasing goods – especially consumer durables having higher GST – the employees not only get the amount equivalent to LTC reimbursed, but also enjoy tax benefit by spending.

“The scheme provides tax exemption provided the taxpayer satisfies the consumer spending criteria as mentioned above. Thus, the LTC component which was initially tax exempt subject to incurring travel expenditure would now be subject to tax exemption on incurring specific consumer spending expenditure. Thus, the Government has provided an alternative opportunity to the taxpayers to claim the benefit of LTC which otherwise they would have to let go due to the ongoing crisis. However, the finer prints of any detailed guidelines on this aspect or any corresponding amendment to Rule 2B which covers Leave Travel Concession is awaited,” said Dr. Surana.

Demand for Consumer Durables

Essential goods are necessary for survival. So, demand for essential goods remained largely unaffected during the Covid-19 lockdown, but luxury and consumer durables took a beating.

The aim of the LTC Cash Voucher Scheme is mainly creating a demand pool for the beaten down sectors.

“The scheme provides a tax exemption alternative to the taxpayers to encourage consumer spending instead of incurring the travel expenditure. Moreover, such consumer spending should be incurred on goods or services which attract a GST rate of 12 per cent or more. There are several products including consumer durables such as refrigerators, washing machines, certain categories of vehicles, etc, which fall under the category with higher GST slab. Thus, the alternative option rather enhances the scope of spending for the taxpayers and with the upcoming festive season, the taxpayer may indulge in products which are usually offered at a discounted price,” said Dr. Surana.

High Expectation

In case of LTC, as the round fare on allowed mode and class of transport is only reimbursed, employees availing LTC would travel in permitted highest class, but try to minimise expenses at tourist destinations – like by staying on guest houses and other cheaper accommodations etc.

Talking on requirement of spending 3 times the amount of fare to avail benefit of the scheme, Dr. Surana said, “The expectation of the consumer to spend 3 times the fare and one time leave encashment is little on the optimistic side considering that the spending traits have been more cautious during the Covid-19 times.”