Indian finance minister recently announced a special package for central government employees aiming at meeting the objectives of employee tax saving and increasing consumer spending. The schemes are
(a) Leave Travel Concession Cash Voucher Scheme
(b) Special Festival Advance Scheme
Here is a look at the detail of the schemes that were announced:
Leave Travel Concession (LTC) Cash Voucher Scheme –
Due to current corona pandemic , employees are refraining from traveling and thus might have lost the benefit of LTC that they would have enjoyed during a normal period. Under this scheme, they would be reimbursed cash equivalent of the LTC fare and the leave encashment instead of the regular LTC, subject to certain conditions. The specified quantum to be spent digitally is three times the deemed LTC fare for each person travelling, plus the amount of leave encashment.
Under the scheme, an employee has to spend a specified quantum of money via the digital mode, on goods / services that are liable to Goods and Service Tax (GST) of 12 per cent or more, from a GST-registered vendor, on or before March 31, 2021. The GST invoice has to be submitted to the employer for verification to claim the benefit.
In case the central government employee spends a lower amount, the total amount payable would be proportionately reduced.
the finance minister indicated that the scheme would also be available for state government as well as for the private sector, where employees are currently entitled to LTC, and would be subject to the guidelines of the Central Government scheme. However in the memorandum issued there is reference only to Central Government employees; hence a specific clarification extending the scheme to all will clear doubts.
Special Festival Advance Scheme
The Finance Minister announced an interest-free festival advance of ₹10,000 through a preloaded RuPay card which is to be used before financial year 2021. This advance shall be recoverable in 10 equal instalments from the subsequent pay of the employee.
The government estimates that these schemes, if availed by employees, would result in an additional demand generation of ₹23,000 crore, which could go up to ₹36,000 crore if the schemes are extended to state government employees also.
These schemes come as some relief to the weary employees. However there are some aspects that are worth considering.
Employees who opted for the Simplified Tax Regime may not be able to take the benefit of this scheme
Private employers may need to relook at the pay structure for employees to enable the employees to avail the benefit.
In case the employees opt for multiple purchases, the employer will have to track the related reimbursements and tax concessions
The benefit undet these schemes might prompt some employees to spend but only time will tell whether the high expectations of demand generation would be met through these schemes.