Avail of cash scheme if you have planned expenses in festive season

Employees need not miss out on LTC benefit in the current block of 4 years

Finance Minister Nirmala Sitharaman announced on Monday that central government employees will be given cash vouchers this year in lieu of leave travel concession (LTC) fare. These vouchers can be spent on buying non-food items that attract goods and services tax of 12 per cent or above. This scheme may also be extended to state government and private sector employees, provided a state government or an employer wants to offer it.

Can’t travel? Take cash

LTC benefit has to be availed of by employees within a block of four years. The current block is 2018-2021, i.e., from January 1, 2018, to December 31, 2020. According to income-tax (I-T) provisions, the most important condition that needs to be fulfilled for availing of this benefit is that the employee must travel.

Says Gopal Bohra, partner, NA Shah Associates: “Many people will be reluctant to travel because of the pandemic.” Without this scheme, they would have missed out on this benefit during the current block.

The scheme also aims to put cash in the hands of cash-strapped employees this festive season (and provide a fillip to consumption). Says Kapil Rana, founder and chairman, HostBooks: “The purpose is also to help employees overcome their cash crunch.”

How will it work? 

We need to first understand how LTC for central government employees works. Explains Bohra: “When a central government employee goes on leave while availing of the LTC benefit, he is marked as present, and he gets encashment for those 10 days. At the same time, he gets the travel fare as well.”

The Ministry of Finance has decided that cash equivalent of leave encashment and LTC fare (the entitled LTC) will be paid as reimbursement, subject to fulfilment of a few conditions.

Says Rana: “An employee can opt to receive cash in lieu of LTC during the block period of 2018-21 equal to the amount of leave encashment plus fare, provided he spends a sum equivalent to leave ens thecashment and a sum three time value of the fare on goods/services as prescribed in the scheme.” Expenditures have to be made before March 31, 2021.

The government has created three categories for availing of the LTC cash voucher scheme — employees entitled to business class air travel, economy air travel, and rail fare — and has capped the payouts.  

Employees can choose between the two options. Says Naveen Wadhwa, deputy general manager, Taxmann: “An employee can either choose the cash voucher scheme or claim regular LTC.” Those who claim the latter will have to meet all the conditions (that is, they will have to travel).  

What should you do?

Experts say that if an employee has planned expenditure — he wants to buy certain goods or avail of certain services in the festive season — only then should he opt for this scheme.

The I-T Act, 1961, shall be amended in due course. Says Wadhwa: “We have to wait for the amendment notification to gain more clarity on the taxability aspect.”