Govt targets 1 lakh crore spend by March end, announces new LTC voucher

Leave Travel Concession 

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In News:

  • The Union Finance Minister has announced two sets of measures to generate consumption demand and boost capital spending in the economy.

Measures announced:

LTC voucher scheme:
  • Through the Leave Travel Concession (LTC) voucher scheme, the finance ministry has decided to allow government and private sector employees to use their LTC tax-free benefit for various types of purchases subject to certain conditions.
  • Thus the employees will be provided tax benefits on LTC component without actually travelling.
  • These employees would, however, be required to spend three times of the LTC fare component for purchasing items that attract 12 per cent or more GST.
  • For example, if the fare component of LTC is Rs 40,000, the beneficiary needs to spend Rs 1.2 lakh on goods that fall in 12% or more GST slab in order to save tax on Rs 40,000.
  • On the other hand, if someone does not spend that amount, they will have to pay tax on the LTC component, as per their normal tax rate.
  • The spending has to be completed by March 31, 2021.
  • For the leave encashment component of LTC, the employee will have to spend an equivalent amount towards the purchase of goods that attract GST of 12 per cent or more.
Special festival advance scheme:
  • The government has restored festival advance, which was abolished as per the recommendations of the 7th Pay Commission, for one time till March 31, 2021.
  • Under this, all central government employees will get interest-free advance of Rs 10,000 that the government will recover in 10 instalments. It will be given in the form of a pre-loaded Rupay card.
  • The spending will have to be done by March 31, 2021.
  • The government expects to disburse (spend) Rs 4,000 crore under the scheme. If all states provide similar advance, another Rs. 8,000 crores is likely to be disbursed.
Leave Travel Concession
Leave Travel Concession 

Measures to boost capital expenditure:

  • Special assistance will be provided to states in the form of interest-free 50-year loans of Rs 12,000 crore, which can be used only for capital expenditure purposes, with certain conditions.
  • For the 50-year interest-free loans, states have been categorised into three groups:
    • Group 1 includes north-eastern states (Rs 1,600 crore) and Uttarakhand and Himachal Pradesh (Rs 900 crore).
    • Group 2 includes other states which will get Rs 7,500 crore in proportion of their share as per Finance Commission devolution.
    • Group 3 will have states which will get total Rs 2,000 crore if they meet three out of four reforms including One Nation One Ration, as mentioned in the government’s AtmaNirbhar package announced earlier in May.
  • The funds, have to be spent by March 31, 2021 and can be used by states for ongoing and new projects and settling contractors’ bills on such projects. The funds provided to states will be over and above their borrowing ceilings.
  • Further, the Centre has proposed an additional budget of Rs 25,000 crore for capital expenditure on roads, defence infrastructure, water supply, urban development. Allocations for these will be made to various ministries
Potential impact of the measures:
  • Through the LTC consumption boost plan, the government expects a demand generation of Rs 28,000 crore in the economy.
  • While GST collections have been severely impacted in the first half of the fiscal due to Covid-19 pandemic, a consumption boost from LTC component will lift GST collections in the second half of the year.
  • The measures will help the consumer durables sector, by giving a boost to consumer sentiment and economic activity.
  • However, the government’s move to redirect LTC funds, will negatively impact the tourism sector, which is among the worst-hit by COVID-19.
  • After eight months of almost zero tourism activity, the industry was expecting the festive season to give the sector a boost.
  • However, the government announcement will discourage travel as even those who have savings would like to encash their LTCs.

About: Leave Travel Concession (LTC):

  • Leave Travel Allowance (LTA) or Leave Travel Concession (LTC) is the employer’s reward to employees, wherein they give the leaves to employees and bear the travel expenses.
  • The expenses include only travelling expenses and not other expense such as food, shopping, lodging etc. Thus, air or rail fare as per the pay scale of the employee is reimbursed to them. Moreover, the travel fare is tax exempt.
  • Travel expenses include expenses of the employee along with his/her family to any place in India, twice in a period of four calendar years. The current ongoing block is between 2017-18 and 2020-21.
  • In addition, under LTC, employees also get ten days of leave encashment, which they have to pay tax on.

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