Amidst an economic downswing, Finance Minister Nirmala Sitharaman recently announced a slew of schemes to boost consumer spending, but neither financial experts nor retailers dealing in consumer goods seem impressed.
One such announcement Sitharaman made on October 15, 2020 was the Leave Travel Concession (LTC) cash voucher. This will allow employees to opt for tax exemption on their leave travel allowance without having to spend that money on travelling. The leave encashment, however, will still be subject to tax.
This means that while earlier employees had to present travel bills to claim the benefit of tax exemption, now they can claim the same benefit by spending the money on consumer durables.
“There are two negatives to it. Firstly, most of the private sector employees buy electronics out of their savings or by taking loans which incurs an interest. On top of it, they have to pay 28% GST on the device they buy. Now, paying the interest and GST to get a small tax benefit is not wise at all. This scheme in any way will not boost or pick up businesses,” said Sohail Yusuff, who owns an electronics showroom in Bengaluru.
Moreover, the FM put forth some conditions for employees to claim the tax benefit.
- Employees will have to spend three times the amount of LTC fare on goods and services that attract a GST of 12% or more. For example, to avail a tax benefit of Rs 100, consumers will have to spend Rs 300 on consumer durables.
- The amount will have to be spent until March 31, 2021, to avail the scheme.
- The purchase should be made in digital mode only.
- The purchase can be made only from GST-registered vendors.
- The GST receipt will have to be produced to claim LTC.
While this scheme is expected to be helpful for government employees, whose jobs and salaries have been intact in the pandemic, experts believe that it is not beneficial for private-sector employees who can claim the amount as part of the CTC itself or get the LTA after tax deduction.
“Private sector employees are already facing hardships due to job losses or pay cuts and since they may not be able to avail the scheme, the LTC/LTA may go unused. If the government was really concerned, there should not have been a condition which requires employees to spend three times the LTC fare. Instead, they should have been allowed to spend the same amount as the LTC,” CS Sudheer, founder and CEO of IndianMoney.com, a financial and livelihood education company, told The Electronics.
Talking about the best option for a private employee in such a situation, Sudheer said, “I believe that private employees should just opt for the new tax regime and claim the LTA after paying the tax unless they can push the allowance to the end of the four-year block.”
The FM also announced an interest-free salary loan of Rs 10,000 for government employees under the Special Festival Advance Scheme. The government has estimated that LTC along with the scheme will generate consumer demand in the range of Rs 36,000 crore.
Mallik V S, CEO of Vasama Consulting, economist and financial expert, spoke of a calculation that shows how the LTC tax exemption does not seem sensible for employees. “Income tax at the highest rate is 30% which amounts to Rs 30 on a tax benefit of Rs 100. To get this tax benefit, consumers have to pay Rs 300 on goods that attract 12% GST which amounts to Rs 36. So, a person will be paying Rs 36 as GST for getting a tax benefit of Rs 30. Furthermore, it is worth mentioning that GST has been taken at least rate and income tax at the highest rate in this example,” he explained.
Experts also believe that the government should have included few more sectors in the scheme, such as the automobile sector, which has taken a severe hit in the pandemic.