LTC Cash Voucher Scheme: CONFUSION CLEARED! Finance Ministry issues statement on misinterpretation of Leave Travel Concession stimulus and its benefits

Ministry of Finance has issued a statement on misinterpretation of Leave Travel Concession (LTC) stimulus and its benefits.

Recently, Modi government had announced new measures of Rs 73,000 crore to stimulate consumer spending before end of this Financial Year in fight against COVID-19. PTI pic.

In a major development, Ministry of Finance has issued a statement on misinterpretation of Leave Travel Concession (LTC) stimulus and its benefits. In its statement, Ministry of Finance says, "A report gives the impression that the LTC voucher scheme for Government employees may not be attractive. Unfortunately, the piece which it relies on has a serious factual error in its understanding of how Government LTC works. It is based on the erroneous assumption that leave travel money can be retained by paying income tax without travelling."

Ministry of Finance further says, "The key assumption in the report claims: They would be better off paying taxes on the LTC amount availed instead."

"The Government LTC is quite different from Leave Travel Allowance in the corporate sector. A person claiming LTC is not eligible unless he actually travels; if he fails to travel the amount is deducted from his pay and he may be liable for disciplinary action. He does not have the option of keeping the money and paying income tax. Under the government system, the employee had only two choices: 1)Travel and spend (and the incidentals like hotel, food, etc. are to be incurred by him) or 2) Forgo the entitlement if not claimed within the date. Now a third option of "spend on something other than travel" has been given. In the current Covid environment, travel carries serious perceived health risks," Ministry of Finance clarified.
Moreover, Finance Ministry said, "The assumption in the report that employees would otherwise not pay GST when they purchase something from their money and are only incurring it because of the scheme is surprising. Everybody pays GST on their consumption unless they choose to buy without bills in black, a practice the Government obviously does not condone and which hopeful the ET does not want to encourage. Incidentally, the entitlements under the scheme have been worked out at full cost (i.e. including the GST element in fares)."

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"Surprisingly, the same piece relied on acknowledges that :"the central government employees are least impacted in terms of savings due to lockdown and no salary loss". It is precisely for this reason that they are in a position to boost their own spending on goods or services of their own choice, using the LTC money as effectively a steep discount to reduce the cost of whatever they choose to buy. Rhetorical questions based on erroneous factual assumptions on Government rules, based on corporate sector practices, do not enrich the debate," Finance Ministry added in its statement.

Recently, Modi government had announced new measures of Rs 73,000 crore to stimulate consumer spending before end of this Financial Year in fight against COVID-19.

Leave Travel Concession (LTC) Cash Voucher Scheme

While announcing the scheme, Finance Minister Nirmala Sitharaman had said, “The biggest incentive for employees to avail the LTC Cash Voucher Scheme is that in a four-year block ending in 2021, the LTC not availed will lapse, instead, this will encourage employees to avail of this facility to buy goods which can help their families.”

Central Government employees get LTC in a block of 4 years in which air or rail fare, as per pay scale/entitlement, is reimbursed and in addition, Leave encashment of 10 days (pay + DA) is paid. But due to COVID-19, employees are not in a position to avail of LTC in the current block of 2018-21.

Therefore, the Government has decided to give cash payment in lieu of one LTC during 2018-21, in which:

-Full payment on Leave encashment and Payment of fare in 3 flat-rate slabs depending on class of entitlement Fare payment will be tax free

-An employee, opting for this scheme, will be required to buy goods / services worth 3 times the fare and 1 time the leave encashment before 31st March 2021.

-The scheme also requires that money must be spent on goods attracting GST of 12% or more from a GST registered vendor through digital mode. The employee is required to produce GST invoice to avail the benefit.

"If Central Government employees opt for it, cost will be around Rs. 5,675 crore. Employees of Public Sector Banks (PSBs) and Public Sector Undertakings (PSUs) will also be allowed this facility and the estimated cost for them will be Rs. 1,900 crore. The tax concession will be allowed for State Government/Private Sector too, for employees who currently are entitled to LTC, subject to following the guidelines of the Central Government scheme. The demand infusion in the economy by Central Government and Central PSE/PSB employees is estimated to be Rs. 19,000 crore approx. The demand infusion by State Government employees will be Rs. 9,000 crore. It is expected that it will generate additional consumer demand of Rs. 28,000 crore," as per Ministry of Finance.

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