Should you encash your LTC and spend on goods during the festive season?

The COVID-19 pandemic that has been unleashing havoc on the entire world for nearly a year now has proven to be more than just a health emergency. It has created a huge dent in the global economy and businesses – big and small – have been affected very severely. At this point in time, it’s not about which industries have been affected; it’s about the extent to which they have been affected.

As the festive season looms around the corner, Finance Minister, Nirmala Sitharaman has made several announcements regarding boosting consumer demand, which has been very adversely affected by the COVID-19 pandemic and the subsequent lockdown that it spawned.

Among her announcements, an interesting one was the Leave Travel Concession (LTC) cash voucher scheme for central government and PSU employees. This scheme would allow the central government and PSU employees to buy goods and services in lieu of the tax-exempt portion of the LTC. This scheme is especially beneficial for those people who want to claim their LTC without actually taking a trip.

The government has, however, laid down certain conditions that must be satisfied for this scheme to work. They are as follows:

The goods and services purchased must be worth 3 times the amount of LTC received.

The money obtained as LTC must be spent on goods or services on or before March 31, 2021.

The money obtained as LTC must be spent on goods or services that attract a GST of 12 percent or more from a GST registered seller.

The payment for the goods and services purchased must be done digitally.

It is mandatory to produce the GST invoice to claim LTC.

The idea behind this scheme is to encourage spending on goods and services as this isn’t the optimum time for traveling as people have become wary of contracting COVID-19 and they’re trying to avoid public places as much as possible.

While the government has announced the scheme for central government and PSU employees, there is no restriction on private companies and state governments and they can follow suit if they so desire. The scheme does seem to help employees utilize the funds which would otherwise have remained unutilized.

However, there is one issue with the scheme and that is the compulsion to purchase products and services that attract a GST of 12 percent or more. This may not be feasible for low-income and middle-income families.

According to section 10(5) of the Income Tax Act, the government employees can claim tax-free LTC two times within a time frame of 4 years. The current block runs from 2018 to 2021. The LTC has been put in place to make it easier for employees to go on a vacation with their family members, which includes spouses, parents, children, and siblings.

Since a lot of people will not be traveling this year because of COVID-19, they might as well encash their LTC and spend it on goods and services. You must, however, fulfill all the conditions laid down by the government. Private company employees can also claim this scheme provided LTC is a part of their remuneration structure – which in most cases, it isn’t.

According to estimates, a vaccine is not too far away now and the pandemic might begin to subside in the coming months. Once a vaccine is available, you might be able to travel more freely to places. However, the cost of travel might skyrocket, given the new norms that would have to be followed to ensure the safety of travelers.

Against the high travel cost, your LTC could get fully utilized in the tax-exempt form. However, LTC can only be claimed on domestic travel, and that too, under certain conditions. Therefore, you must consider all things and decide whether you can claim LTC or not.

The true benefit of claiming LTC at this moment is that the goods that would qualify as the right expenditure for availing LTC are the same goods that you would be buying at this time. Goods like mobile phones, laptops, tablets, and other electronic equipment are being sold at hefty discounts on e-commerce platforms, so you can buy them at considerably lower prices.

Whether or not you should opt for the scheme depends totally upon your financial state. Here’s what you should keep in mind: don’t simply opt for the scheme for the sake of claiming the LTC amount. You’re only getting tax-exemption; you’re not getting those products for free. But if you have expenses planned up to March, then it would be advantageous for you to opt for the scheme.

Moreover, the scheme still needs some refinement and finer details are yet to surface. For instance, the scheme doesn’t make it clear whether the amount to be claimed as tax-exempt should be spent one-time or whether it can be broken down into smaller transactions, it also doesn’t clarify whether it’s necessary to get the GST invoice in the name of the employee or if it could be made in the name of a family member.

There are many more details like these that are yet to come out and they would help make things clearer. So you probably shouldn’t rush as the deadline is set for March 31, 2021. It’s always better to be safe than sorry.