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Festive demand booster: Encash your LTC and spend it on goods

To improve demand in the upcoming festive season, the finance minister announced additional leave travel allowance benefits to be used before March 31, 2021. But many clarifications are awaited

October 13, 2020 / 05:35 PM IST

Ahead of the festive season, Finance Minister Nirmala Sitharaman made a slew of announcements aimed at boosting consumer demand, which was adversely affected by the COVID-19 pandemic.

She announced an optional leave travel concession (LTC) cash voucher scheme for central government and PSU employees. Under this scheme, they can choose to encash their LTC of 10 days and and travel fare tax-freereceive an additional amount equal to three times the travel fare, provided they spend this amount to shop for goods attracting GST of over 12 per cent.  “The intention is to encourage spending of such an accumulated amount – as actual travel may not be undertaken by central government employees – on such goods or services to revive the consumption cycle. As Rule 2B of the Income Tax ACT provides for the rules on Leave Travel Allowance, there could be changes expected in these rules to incorporate the announcement by the FM on Monday,” says Suresh Surana, Founder, RSM India, a tax consultancy firm.

Private companies and state governments are also allowed to facilitate the scheme for their employees. “Employees can now use the funds which would have remained unutilised otherwise. On the flipside, allowing cash vouchers to be spent only on items under the GST slab rate of 12 per cent or more is not very feasible for middle income families,” points out Prashant Singh, Vice-president and Business Head, CPO, Teamlease Services.

How will the LTC cash voucher scheme work for central government and PSU employees?