The Novel Coronavirus (COVID-19) pandemic has been causing extreme disruptions in the economy. However, of late, points are now to appear up. With a view to revive the economy by boosting customer spending and escalating capital expenditure by states, the Finance Minister (FM) has lately brought in several fiscal help packages.
One of the measures announced to enhance customer spending is the introduction of “Leave travel Concession (LTC) Cash Voucher Scheme”.
Key highlights of the LTC Cash Voucher Scheme:
1) Applicability
As per the Office Memorandum (OM) dated 12 October 2020, by the Ministry of Finance, the above scheme is applicable to Central Government workers. Further, by means of a press release on 29 October, the ministry issued that the scheme would also be applicable to non-Central Government workers as nicely.
Non-central government workers would involve workers of state government, public sector workers, banks and private sector.
2) Deemed LTC Scheme
The scheme permits money equivalent to LTC, comprising leave encashment and LTC fare of the entitled LTC, may well be paid by way of reimbursement, if the employee opts for this in lieu of 1 LTC in the course of the block period of 2018 -2021. Due to COVID-19 and consequent travel restrictions and keeping of social distancing, workers have not been in a position to avail LTC in the present block period of 2018-2021. Hence, as an option, the above scheme has been introduced.
3) Riders linked to tax incentive
a. This scheme is applicable to the LTC fare unutilised in the course of the block period year i.e. 2018-2021.
b. The quantity each on account of leave encashment and fare shall be admissible if the employee spends –
b.i. An quantity equal to worth of leave encashment
b.ii. An quantity 3 instances of the worth of the deemed LTC fare
c. The above expenditure really should be incurred on buy of goods/ solutions which carry GST price of not much less than 12% from GST vendor/service providers. Some of the examples of goods/ solutions attracting GST @ 12% or extra are customer goods, readymade garments, tv/ net/Television cable solutions, and so on.
d. The payment to buy the above goods/solutions really should be by means of digital mode only.
e. The above expenditure really should be incurred in the course of the period 12 October 2020 to 31 March 2021.
f. The employee really should receive a voucher indicating the GST quantity and the quantity of GST paid.
g. The employee who has exercised an selection to spend tax beneath concessional tax regime beneath section 115BAC of Income tax Act, 1961 shall not be entailed for the above exemption.
h. An person require not take leave for this goal nor undertake any travel.
i. The deemed LTC fare is capped at INR 36,000 per individual (round trip). For non-Central Government workers, payment of money allowance of a maximum of Rs 36,000 per individual as deemed concession fare would be permitted as earnings tax exemption topic to other terms and situations.
For Central Government workers, there are distinct slabs for maximum LTC concessions (Employee eligible for enterprise class is Rs 36,000 per individual per trip, workers eligible for economy class is Rs 20,000 per individual and workers eligible for rail fare is Rs 6,000 per individual per trip).
j. In case the employee spends much less than the expected quantity, the tax exemption, and the LTC money allowance will stand decreased by the proportion of the shortfall in spending.
k. If an employee has received an quantity in advance which has some excess quantity, then the employee would require to return this quantity to the employer.
l. As per the OM dated 12 October, an quantity up to one hundred% of leave encashment and 50% of the worth of deemed fare may well be paid as advance into the bank account of the employee which shall be settled primarily based on production of receipts towards buy and availing of goods and solutions. The claims beneath this package (with or with out advance) are to be created and settled inside the present monetary year.
4) Illustration
Deemed LTC Fare : Rs.20,000 x 4 = Rs. 80,000
Amount to be spent : Rs. 80,000 x 3 = Rs. 2,40,000
Thus, if an employee spends Rs. 2,40,000 or above on specified expenditure, he shall be entitled for complete deemed LTC fare and the associated earnings-tax exemption. However, if the employee spends Rs. 1,80,000 only, then he shall be entitled for 75% (i.e. Rs. 60,000) of deemed LTC fare and the associated earnings-tax exemption.
The above measures are anticipated to stimulate demand and subsequently enhance the economy.
(By Homi Mistry, Partner, Deloitte India, with Niji Arora, Senior Manager, and Tarika Agarwal, Manager with Deloitte Haskins and Sells LLP)