Needless restrictions for LTC incentives

The Economic Times     31st October 2020     Save    

Context: While the government has done well to think up a measure to boost consumption demand by offering a tax incentive, the presence of certain restriction act as a hurdle.

Features of tax exemptions:

    • Exemption on Leave Travel Concessions (LTC): Exemption can be availed by spending three times the travel allowances on purchases which carry at least 12% goods and service tax.
    • Inclusion of Private Sector: Such Tax exemptions are available not just to government employees but also to private sector employees. 
  • Exclusions: Under the concessional tax regime, in any case, individuals earning Rs 15 lakh and above will continue to pay 30% tax without any exemptions. 

Issues with steps taken

  • Unnecessary Restriction: No tax exemption to be offered in case employee has given up LTC in return of lower tax rates.
    • This is needless since, in 2020 budget, taxpayers are allowed to select lower income tax rate, in return of forgoing exemptions and deductions including LTC.
    • There is little sense in insisting that an employee who has asked her employer to deduct tax at the lower rate should be barred from spending more to boost demand in the economy.