3:1, LTC plan won’t go far

The Centre’s announcement on Monday exempting leave travel concession (LTC) from tax even if no journey has actually been performed during the 2018-2021 block is as much applicable to government employees as to the employees of private sector. While the Central government employees are going to enjoy this liberalised benefit for sure, for private sector employees it would depend on whether their employers embrace the new one-time scheme or not.

Under the scheme, an employee can get reimbursement from his employer if he spends digitally three times the amount of his LTC entitlement on GST goods and services attracting 12 per cent or more tax. The government has been pragmatic. It knows that employees will find travel during the Covid-19 pandemic difficult. Since actual travel is essential for claiming the income-tax exemption, employees were waiting for this government announcement to utilise their LTC entitlement which otherwise would have gone abegging for no fault of theirs.

White goods sector

The white goods industry is already looking forward to the prospect of brisk sales this festival season on the back of this LTC- oriented announcement because most of the consumer durables are in the 18 per cent or 28 per cent GST brackets.

White goods come under the discretionary spend category. Now that the employees have been financially and fiscally empowered, they are likely to go on a binge. White goods have been attracting households’ attention with maidservants being perceived as a risk factor during these Covid times. Home-makers are seeing merit in using dishwashers, washing machines and vacuum cleaners instead of resorting to the services of maidservants.

Critics, including the middle-class, may pick holes in the scheme. Why mandate a three times spend in relation to the exemption sought? For example, if an employee is entitled to an LTC exemption of ₹1.50 lakh, he will have to fork out ₹4.50 lakh on the GST items in the 12 per cent and above bracket, to make the grade for income-tax exemption. Where will the employee go for the extra ₹3 lakh?

The festival advance of ₹10,000 per head would be hardly enough to fill the breach. Has the government gone overboard in its avowedly noble desire to give a helping hand to the durables sector, mainly the automobile industry? When an employee in normal times was granted exemption on the basis of one-to-one relationship, why should he be burdened with 3:1 relationship between the expenditure and the tax exemption during these tough times?

It is entirely possible that some employees would see merit in foregoing their LTC claim, put off by the backbreaking burden its compliance entails. The bottomline is the scheme would be out of reach for low-level employees and at best might attract middle-level and senior executives unless the former go for consumer loans much to the delight of the banking sector.

But, then, it is not as if employees are being arm-twisted to embrace the scheme because the extant scheme can be adopted if an employee wants. For this he has to make bold to step out of the claustrophobic confines of his home/workplace and dare to travel to a tourist spot. In that event, he would make the grade for income tax exemption on the basis of 1:1 equation between the expenditure and the exemption.

The writer is a Chennai-based chartered accountant

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