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The government also announced an interest-free festival advance of  ₹10,000 through a preloaded RuPay card which is to be used by March 31, 2021
The government also announced an interest-free festival advance of 10,000 through a preloaded RuPay card which is to be used by March 31, 2021

A closer look at LTC cash voucher scheme

  • Given the current pandemic, employees may refrain from traveling and thus lose the benefit of LTC that they would have enjoyed during a normal period.

The finance minister recently announced a special cash package for central government employees that aims at meeting the twin objectives of employee tax saving and increasing consumer spending. The package has two schemes -

(a) Leave Travel Concession Cash Voucher Scheme

(b) Special Festival Advance Scheme

Here is a look at the detail of the schemes that were announced:

Leave Travel Concession (LTC) Cash Voucher Scheme -

Given the current pandemic, employees may refrain from traveling and thus lose the benefit of LTC that they would have enjoyed during a normal period. Employees however would be reimbursed cash equivalent of the LTC fare and the leave encashment if they opt for this scheme, instead of the regular LTC, subject to certain conditions. The specified quantum to be spent is three times the deemed LTC fare for each person travelling, plus the amount of leave encashment.

As per the scheme, an employee needs to spend a specified quantum of money via the digital mode, on goods / services that are liable to Goods and Service Tax (GST) of 12 per cent or more, from a GST-registered vendor, on or before March 31, 2021. The GST invoice needs to be submitted to the employer for verification to claim the benefit.

The scheme also provides that in case the central government employee spends a lower amount, the total amount payable would be proportionately reduced.

The notification issued for government employees provides the deemed LTC fare as below:

The deemed LTC fare will be eligible for tax concession as per existing income tax provisions.
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The deemed LTC fare will be eligible for tax concession as per existing income tax provisions.

Employees who opt for the scheme and spend the required amount, will be reimbursed the full leave encashment value net of requisite tax and deemed LTC fare (based on number of persons travelling). The deemed LTC fare will be eligible for tax concession as per existing income tax provisions. Thus there are several conditions that the employee needs to ensure are met to avail this benefit. Further, the scheme is beneficial for central government employees as they would not have been eligible for LTC unless they actually travel.

While presenting the scheme, the finance minister indicated that the scheme would be available for state government as well as for the private sector, where employees are currently entitled to LTC, and would be subject to the guidelines of the Central Government scheme. However in the memorandum issued there is reference only to Central Government employees; hence a specific clarification extending the scheme to all will clear doubts.

Special Festival Advance Scheme

The Finance Minister also announced an interest-free festival advance of 10,000 through a preloaded RuPay card which is to be used by March 31, 2021. This advance shall be recoverable in 10 equal instalments from the subsequent pay of the employee.

The government believes that these schemes, if availed by employees, would result in an additional demand generation of 23,000 crore, which could go up to 36,000 crore if the schemes are extended to state government employees also.

These schemes come as some relief to the weary employment class and the thrust of the finance minister towards digitization is commendable. However there are some aspects that are worth considering.

-From the current financial year, employees are provided a choice between the Simplified Tax Regime and the regular regime, whichever is beneficial to them. Employees who opted for the Simplified Tax Regime may not be able to take the benefit of this scheme

-Many employees in the private sector are not entitled to leave encashment till retirement/ resignation. Based on the notification, it appears both the leave encashment option and LTC should be opted together to avail the benefit. Thus employers may need to relook at the pay structure for employees to enable the employees to avail the benefit.

-In case the employees opt for multiple purchases, the employer will have to track the related reimbursements and tax concessions

-Issues like non-availability of leave balance and deemed LTC determination for private sector also needs clarity.

Given that the festive season is just around the corner, the finance minister’s announcement comes at the right time. The benefit may prompt some employees to spend but only time will tell whether the high expectations of demand generation would be met through these schemes.

Aarti Raote is Partner, Deloitte India and Jimish Vakharia is Senior Manager, Deloitte Haskins & Sells LLP.

(The views expressed are solely of the author)

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