Needless restrictions for ltc incentive

Needless restrictions for ltc incentive

The government has done well to think up a measure to boost consumption demand by offering a tax incentive that does not add to the tax giveaways already baked into the budget.

This is the offer to employees to avail themselves of the tax exemption available on leave travel in a block of four years, the so-called Leave Travel Concession (LTC), without actual travel, but by spending three times the travel allowance on purchasing something that carries a goods and services tax of at least 12%.

The incentive is on offer to those outside government service as well. However, the tax exemption will not be available, says the government, if an employee has given up LTC in return for a slightly lower rate of income tax.

This is unnecessary. Budget 2020 allows taxpayers to choose a lower rate of income tax by forgoing deductions and exemptions. The exemptions include LTC. An employee should not be deemed to have exercised her option on which tax regime she wants to follow till the annual return is filed.

Informing an employer of her choice of the tax regime is only indicative. A taxpayer can always change the option at the time of filing her tax returns. So, she should not be barred from availing the LTC that has been tied to spending norms.

It is fair to say that an employee cannot enjoy a lower rate of income tax and the income tax incentive linked to LTC; but 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.

Some changes would be needed in tax deducted at source (TDS), that is all. Under the concessional tax regime, in any case, individuals earning `15 lakh and above will continue to pay 30% tax without any exemptions.