LTC Cash Voucher Scheme: Decoding The New Announcement

The LTC Cash Voucher Scheme was announced by Finance Minister Nirmala Sitharaman on the 12th of October 2020. 

With the first full-year economic contraction in decades, there is a risk that India might slip into recession for a while. To control this situation, the government decided to stimulate consumer spending and announced two incentives.  

1. LTC Cash Voucher Scheme 
2. Special Festival Advance Scheme 

These incentives were proposed after the indications that the government and organised sector employees’ savings have increased over the past 6 months. The aggregate bank deposits have increased by Rs 6.8 lakh crore since April 2020 as compared to an increase of Rs 1.5 lakh crore in the same period last year.

Since individuals and businesses are adapting to the new normal, it is important for them to be able to spend more. And, that is what our government is enabling.

Let’s discuss the LTC cash voucher scheme and Special Festival Advance Scheme in more detail.

LTC Cash Voucher Scheme – New announcement

Here are the features of this scheme. 

• Central Government employees will get LTC in a block of 4 years (one to anywhere in India & one hometown or two for the hometown)
• Air or rail fare, as per pay scale/entitlement, will be reimbursed. Here are the three employee categories depending on the class of entitlement 

• Leave encashment of 10 days will be paid
• For one LTC during FY 2018-21, the cash will include full payment of leave encashment, payment of travel fare in 3 flat-rate slabs based on entitlement. Also, the fare payment will be tax-free for employees
• Employees will have to spend 3 times the fare and 1 time the leave encashment on buying goods or services that attract a GST of 12% or more. An employee, opting for this scheme, will be required to spend the amount before the 31st of March 2021
• Money must be spent through digital modes, and a GST invoice will be required

The LTC in the block of FY 2018-21 will lapse if not availed. So, the employees are being encouraged to opt for this scheme to buy goods which can help them and their families. 

State government and private sector employers can choose to give such facilities to their employees and help them benefit from this scheme.

To find out how much GST you must pay for goods or services, simply use an online GST calculator.

Here’s an example to understand this scheme. 

Before the LTC cash voucher scheme

• A government employee with basic pay of Rs 55,000 is entitled to AC-2 tier fare to any destination within the country
• Suppose the person travels from Chennai to Delhi, it will cost him Rs 3,500 one way per person
• Including spouse, employee and two children, the amount will be Rs 28,000

Under the LTC cash voucher scheme

The person falls under the category of Rs 6,000 train fare. 

• The total payout will be Rs 24,000 for four people. But, the person will have to spend Rs 72,000 on buying eligible goods
• Also, the employee will receive Rs 18,333 as 10-day leave encashment and will have to spend the entire amount
• So, the total expense will be Rs 42,333 

That means, to receive Rs 42,333, the employee will have to spend Rs 90,333. 

Moreover, the leave encashment will be subject to TDS, and the LTC amount will be eligible for tax benefits. 

Special Festival Advance Scheme

All the Central Government employees will receive an interest-free festive advance of Rs 10,000 in the form of prepaid Rupay cards. This advance will be valid until the 31st of March 2021. 

The government will recover the interest-free advance from the employees in a maximum of 10 instalments. 

The scheme is not new for government employees. The 7th Pay Commission abolished such festival advance or other similar advances. 

Our take

The festive season is approaching, people might choose to buy electronics, furniture, etc. and they may find this offer attractive. Also, some employees might think spending 3 times the amount as an expensive proposition. 

So, if you have already planned your expenses for the festive season, you can buy it using the festival advance and also become eligible for the LTC cash voucher scheme.

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