The Finance Minister of India, Nirmala Sitharaman announced two special demand stimulus packages to encourage consumption and boost capital spending.
The schemes involve the issuance of a cash voucher for Leave Travel Concession (LTC) and a special festival advance scheme mainly benefitting central government employees. Under the LTC cash voucher scheme, cash corresponding to Leave Travel Concession (which consists of Leave Encashment and the fare of the entitled LTC for the 2018-2021 block) can be claimed.
The LTC cash voucher scheme can be availed by central and state government employees, public sector banks, and other public sector undertakings. However, as per the memorandum, tax concession will be allowed for the state government and private sector employees who currently qualify to receive LTC, per the guidelines of the central government scheme.
The Finance Ministry has provided this option to government and private sector employees to claim the LTC Scheme benefit for various purchases under certain conditions. The government employees can also avail of a tax-free festival advance of Rs. 10,000.
Impact of LTC Benefits on Taxpayers
The COVID-19 pandemic has affected all activities around the globe. Restricted travel has derailed the taxpayers’ ability to claim LTC. The government has put forward a measure for central government employees to claim tax benefits on LTC without actually having to travel. The employees have to spend three times the LTC fare component for purchasing goods that attract 12 percent or more GST. For instance, considering that the fare component LTC of a taxpayer is Rs. 50,000, he / she needs to spend Rs 1.5 lakh on goods that have 12% or more GST slab in order to save tax on Rs 50,000.
If the taxpayer has not spent that amount, he / she has to pay tax as per the marginal tax rate applicable, on the LTC component. So, if the taxpayer is under the 10% tax slab, he / she has to pay an additional tax of Rs 5,000 and if falling under the 30% tax slab, has to pay a tax of Rs 15,000 on the LTC fare component of Rs 50,000.
What is the impact of LTC Benefits on the Economy?
With the announcement, the government is looking to stimulate spending, and create consumer demand to the tune of Rs 36,000 crore. The same benefit can be availed by the private sector employees if the employer decides to offer the scheme to the employees.
Impact on Government’s Revenue
Owing to the COVID-19 pandemic, the GST collection for the first half of the financial year has been greatly affected due to a reduced consumption rate. It is expected that the consumption booster plan put forward by the government will improve GST collection in the second half of the financial year as the scheme is applicable till March 31, 2021.
Special Festival Advance Scheme
In the 7th Pay Commission recommendations, the government has done away with the festival advance and other similar advances. The festival advance scheme is now revived by the government as a one-time measure till March 31, 2021. ll the central government employees will get Rs. 10,000 in advance coming interest-free as a preloaded RuPay Card.
More information you need to know about the scheme.
The interest-free festival advance will come in the form of a prepaid RuPay card which can be availed and spent by March 31, 2021. This can be spent anywhere and will be recoverable in a maximum of 10 installments. The bank charges will also be handled by the government. The government expects to disburse Rs. 4000 crores under this advance scheme.
An additional budget of Rs. 25,000 crore, in addition to the Rs.4.13 lakh crore allocated in Budget 2020, is being provided for Capital Expenditure on roads, defence, water supply, urban development and domestically produced capital equipment.
An amount of close to Rs. 4,000 crore is expected to be disbursed under this scheme. With the states’ participation, the disbursal amount may go up to Rs. 12,000 crore.
In essence, this comes as a spate of good news for the citizens, who have been going through very challenging times owing to the COVID-19 pandemic. These measures are expected to energize trade, industries, and the economy as a whole with the spurt in consumer demand.