All You Need To Know About LTC Cash Voucher Scheme
Employees will be paid travel allowance in cash if they promise to spend three times the amount on buying tax-paid goods.
In a year when Asia’s third-largest economy is headed for its first full-year contraction in decades, India announced an incentive for central government employees ahead of the festival season to boost consumption.
Employees will be paid travel allowance in cash if they promise to spend three times the amount on buying tax-paid goods or services, according to a plan announced by Finance Minister Nirmala Sitharaman as part of latest measures to boost demand. The so-called LTC Cash Voucher Scheme is expected to cost Rs 7,500 crore for employees of central government and public sector units, as per the finance ministry statement.
That comes when the pandemic has battered consumption as Indians working in private companies either lost jobs or faced salary cuts, and small and medium business owners struggle with cash crunch. The government is falling short of tax revenue. It hopes that public sector employees will avail the benefit during the Diwali festival, considered auspicious for buying.
Existing Benefit
A government employee is entitled to leave travel allowance once in a block of four years. The government bears the travel cost of a trip to anywhere in the country, and another to hometown for the employee and his immediate dependents (spouse and children); or two trips to hometown .
Depending on the pay grade, employees are reimbursed air or rail fare. The employee is also eligible for leave encashment of 10 days.
What’s On Offer Now
The government has created three categories for availing the LTC Cash Voucher Scheme and capped the payouts: employees entitled to business class air travel, economy air travel and rail fare.
Employees will now get cash equivalent to the total of the full roundtrip fare and leave encashment. The condition is that they will have to spend three times the fare and full leave payout on buying goods or services attracting a GST of 12% or more.
Here’s an illustration:
Earlier
- Usually, an employee with a basic pay of Rs 51,000 is entitled to an AC-2 tier fare to a destination of choice within the country.
- Say, the person travels from Delhi to Trivandrum—Rs 3,670 one way per person at current fares.
- Together for the employee, spouse and two children, that’s Rs 29,360.
Under LTC Cash Voucher
If the family hasn’t gone on a vacation in the last four years, it’s eligible under the new scheme. This person falls in the category of a roundtrip of Rs 6,000 train fare.
- The total payout for four people would be Rs 24,000 (6,000x4)—but the employee will have to spend Rs 72,000 on buying goods to be eligible.
- A 10-day advance leave payout works out to around Rs 17,000, and the employee will have to spend the entire amount.
- In all, total expenditure would be around Rs 89,000.
What that means is in order to get Rs 41,000 the employee will have to spend Rs 89,000.
That’s not all. Encashment of leave will be subject to tax deducted at source, while LTC amount will be eligible for income tax exemption, according to an office memorandum by the ministry.
Those opting for the scheme will get 100% leave encashment and 50% of the fare upfront in cash, while the rest will be paid on showing invoices of purchases.
If the amount is not fully spent on purchases, the government will pay 27% of the total amount spent as ticket fare and 18% as leave encashment.
What Employees Make Of It
Employees, who spoke to BloombergQuint on the condition of anonymity as they are not authorised to speak to the media, had different views.
A person who hasn’t availed LTC from 2018-21 would find the offer attractive if some expenses are planned, said a government official. Ahead of the festive season, people choose to buy electronics, and they may find the scheme worth availing, he said. Otherwise, he said, the employee will not even get this limited benefit. Immediate disbursal, according to him, will nudge people to spend.
According to a second government official, the scheme would have been attractive if employees were given the choice and the payout wasn’t linked to their salary. The first two categories involve a higher sum, and spending three times that amount is an expensive proposition for even high-rank officers, he said.
Creating fresh obligation and channelling demand only to specific goods would discourage people, said a third official. This is because all employees, whether employed by the government or private sector, have chosen to save during these trying times, he said.
Employees, however, may choose to avail the Rs 10,000 festival advance that can be repaid in 10 instalments.
Part of the amount that needs to be spent for availing LTC cash voucher scheme can be funded through this festive advance, said M Govinda Rao, a member of the Fourteenth Finance Commission. “There will be a lot of fungibility,” he said. "Instead of spending your own cash, you can buy it using the festival advance, and then get yourself eligible for the LTC cash voucher.”