Amid growing concerns about the economy and a season of festivities nearing, Indians seem to be concerned about having a dull couple of months coming their way. The Union Finance Minister Nirmala Sitharaman on Monday announced proposals regarding consumer spending and capital expenditure.

As a part of consumer spending, she announced her proposals within two components – LTC cash voucher scheme and the special festival advance scheme.

What you need to know about LTC cash voucher scheme?

  1. The central government employees will get leave travel concession in a block of four years – one each to a destination of choice and home town or two for home town only.
  2. Under the LTC cash voucher scheme, the air or rail fare is reimbursed as per pay scale/entitlement. Also, employees will get leave encasement of 10 days (pay+dearness allowance).
  3. Employees however need to make note that they will not be able to enjoy the benefits of LTC in the 2018-21 block due to the restrictions put forth by the pandemic.
  4. In lieu of one LTC during 2018-21, employees will receive a cash payment. Employees will receive full payment on leave encasement and the fare will be paid as per three slabs depending upon the class of entitlement. Further on, there will be no tax on fare payment.
  5. If an employee opts for the LTC cash voucher scheme, she/he will have to buy goods and services worth three times the fare and one time leave encasement and will have to do so before March 31, 2021.
  6. The money availed from the scheme is to be spent on goods attracting GST of 12 percent or more and only digital payments will be allowed as a mode of transaction. Employees will also have to provide a GST invoice.
  7. The finance minister said the scheme would ideally cost Rs 5,675 crore if the Central government employees actually go ahead and opt for it. However, for PSB and PSU employees, it would cost Rs 1900 crore.
  8. Sitharaman further projects that even with 50 percent of states opting for this scheme, the government expects to infuse Rs 9000 into the national economy.

How does this scheme impact you?

What the LTC scheme means is that if your fare component of LTC is Rs 40,000, you need to spend Rs 1.2 lakh on goods that fall in that 12 per cent or more GST slab. This has to be done to save tax on Rs 40,000.

On the other hand, if you do not spend the amount, you may have to pay tax as per your marginal tax rate on the LTC component. So, if you fall in the 10 per cent slab, you will have to pay additional tax of Rs 4000, and if you fall in the 30% slab, you will have to pay additional tax of around Rs 12,000 on the LTC fare amount of Rs. 40,000.

As for the leave encashment component, the employee will have to spend an equivalent amount towards the purchase of goods that attract get off 12 percent or more.