Decoding LTC voucher scheme

Kapil Rana | Updated on November 17, 2020

Extending it to non-govt staff may kickstart the spending cycle

The Centre has extended the LTC Cash Voucher Scheme to non-government employees, too, in a bid to boost spending.

But the benefit must be availed by March 31, 2021 by buying the prescribed goods or services, else the allocated LTC will lapse.

The Covid-19 pandemic has led to an overall drop in discretionary spending by all public and private sector employees.

During the past few quarters, the Centre has announced a variety of measures to improve the economic sentiment and boost consumer spending.

The measures, however, have met with limited success. Taking these factors into account, the Centre has decided to extend the LTC Cash Voucher Scheme to ‘non-government employees’ too.

Accordingly, the payment of cash allowance would be allowed as an exemption to non-government employees as deemed LTC fare, subject to an upper limit of ₹36,000 per person (round trip).

Of course, certain terms and conditions need to be fulfilled in claiming the exemption. Firstly, the employee must exercise the option for deemed LTC fare in lieu of the applicable LTC in the 2018-2021 period. Secondly, the employee should spend a sum equal to thrice the value of the deemed LTC fare on purchasing goods or services attracting GST of 12 per cent or more.

Besides, these goods must be purchased or the services availed from registered vendors through a digital mode only.

Also, the goods purchased or services availed must be during the period from October 12, 2020 to March 31, 2021. The employee will also need to provide a GST Invoice that indicates the GST number along with the amount of GST paid.

Benefit for employees

Generally, employees receive LTC in a block of four years for travelling anywhere in India. Exemption under Section 10(5) is allowed for two journeys during the block of four years. The current block for LTC comprises the calendar years 2018 to 2021.

During this pandemic situation, however, most employees may not be in a position to avail themselves of this facility.

Taking this into account, the Centre has tweaked the rules. If an employee opts for the LTC cash voucher scheme, s/he can avail of the LTC benefit without undertaking any journey in the respective block years between 2018 and 2021.

The biggest benefit of the LTC cash voucher scheme is that in the four-year block ending in 2021, if LTC is not availed, then it lapses automatically.

As stated earlier, this rider is aimed at encouraging employees to buy goods or services.

For example, employees can purchase goods or services that are useful in their daily lives — subject to these items attracting 12 per cent or higher GST.

Benefit for the govt

The Centre hopes to nudge people into spending the allocated LTC, which will otherwise lapse, and boost consumption in an economy that has been battered by the pandemic.

Almost all employees are likely to utilise the benefit.

Ultimately, this mandated expenditure will boost the economy and increase liquidity in the market. Given the significant demand push converting into ground-level transactions, there is bound to be a short-term boost in the government’s revenue collections.

Furthermore, there is always the possibility that this short-term impetus will help kick-start the country’s economic engine and convert into long-term momentum.

Nonetheless, if an employee spends less than three times the deemed LTC fare on specified expenditure during the notified period, then s/he shall not be eligible to receive the full amount of deemed LTC fare and the related income-tax exemption.

Thereafter, the amount of both will be reduced proportionately.

Since the LTC cash voucher scheme has been devised to provide exemption vis-à-vis LTC fare, employees opting for the benefit of concessional tax regime u/s 115BAC shall not be eligible for this as they are not entitled to exemption u/s 10(5).

Therefore, employees need to understand the benefits of the LTC cash voucher scheme and avail themselves of it as per the prescribed norms.

The writer is Founder & Chairman, HostBooks Ltd

Published on November 17, 2020

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