In a bid to boost consumption in an economy hit hard by the Covid-19 pandemic, the government announced an LTC cash voucher scheme for its employees. By opting for this scheme, government employees can purchase goods and services in lieu of the tax-exempt portion of the Leave Travel Concession/Leave Travel Allowance (LTA/LTC). He/she can claim tax-exemption on the travel fare encashed if the amount is spent by satisfying specified conditions.
But to avail of these schemes, an employee needs to spend an amount equal to the value of leave encashment and an amount three times of the cash equivalent of deemed fare, on purchase of items or avail services. The spending has to be done through the digital mode before March 31 on goods and services that attract GST of 12% or more. The employee shall obtain a voucher indicating the GST number and the amount of GST paid.
The deemed LTC fare for this purpose is as follows:
- Employees who are entitled to business class of airfare: ₹36,000 (per person Round Trip)
- Employees who are entitled to economy class of airfare: ₹20,000 (per person Round Trip)
- Employees who are entitled to Rail of any class: ₹6,000 (per person Round Trip)
Saraswathi Kasturirangan, Partner, Deloitte India says, “To avail the tax exemption employees are required to either purchase goods or services which are 3 times the amounts which would be claimed as a concession in respect of travel tickets within 31 March 2021.”
“However, the memorandum does not clarify whether these purchases can be broken into smaller bills or has to be a single bill or whether the invoices has to be in the name of the employee or whether bills in the names of family members be eligible under the scheme are acceptable,” she added.
Govt LTC is different from LTA in the corporate sector
“The government LTC is quite different from the Leave Travel Allowance in the corporate sector. A person claiming LTC is not eligible unless he actually travels; if he fails to travel the amount is deducted from his pay and he may be liable for disciplinary action. He does not have the option of keeping the money and paying income tax,” the finance ministry said in a note.
Under the government system, the employee had only two choices: 1)Travel and spend (and the incidentals like a hotel, food,etc. are to be incurred by him) or 2) Forgo the entitlement if not claimed within the date. Now a third option of “spend on something other than travel” has been given. In the current Covid environment, travel carries serious perceived health risks.
Should you opt for it?
Amidst this lockdown, employees have not travelled and hence not been able to claim the leave travel allowance. Private sector employees have the option of encashing their leave but central govt employees don’t. Thus the LTC cash voucher seems like a good bonanza for them. In an internal circular to central govt employees, the working for LTC cash voucher and the amount to be spent has been prescribed.
Let’s take the example of an employee earning Rs. 1,50,000, eligible for economy class air travel.
Leave encashment: (1,50,000*1.17)*10/30 = Rs. 58500
Leave travel allowance (economy class airfare): Rs. 20000
The total amount the employee will get as an LTC cash voucher will be Rs. 78,500. And the employee must spend Rs. 1,18,500 (58500 + 60000 (Rs. 20k x 3)). That’s shelling out an additional Rs. 40,000 from their wallet!
So if you have some purchases lined up, seeing as it is Diwali, perhaps a long due round of home renovation or if you are eyeing the new iPhone 12, this cash voucher will lend you the financial hand to make all your payments. Plus, you have till the 31st of March, 2021 to spend this money. However, if you want to adopt a more frugal mindset or if you are worried about a job loss or income disruption, it’s best to avoid the scheme and the purchases that come along with it for now.
