Aimed at boosting consumption expenditure, the scheme requires employees to spend up to three times the amount they are entitled to by March 31, 2021, in order to avail the tax benefits accompanying LTC.
“With a view to compensate and incentivise consumption by central government employees thereby giving a boost to consumption expenditure, it has been decided that cash equivalent of LTC, comprising leave encashment and LTC fare of the entitled LTC may be paid by way of reimbursement, if an employee opts for this in lieu of one LTC in the block of 2018-21,” said a finance ministry office memorandum.
The package, which came into force on Monday, requires employees to opt for the cash equivalent of both leave encashment and travel fare.
Employees will be entitled to reimbursement of the full leave encashment if the entire amount is spent via digital mode on items that attract goods and services tax (GST) of 12% or higher only from GST registered vendors.
The LTC fare amount has been divided into three slabs based on the type of travel employees and their families are entitled to. A round trip fare per person works out at Rs 36,000 for business class airfare, Rs 20,000 for economy airfare and Rs 6,000 for rail fare, said the order.
Employees opting for the scheme will be required to spend three times the amount of LTC fare in the same manner mentioned earlier in order to get a full reimbursement of the tax-free amount as per existing LTC rules.
Employees may be given up to 100% advance on the leave encashment amount and 50% for the LTC fare. They will have to provide invoices of the items purchased in order to receive the reimbursements.