What is LTC cash voucher scheme?

Finance Minister Nirmala Sitharaman on Monday announced LTC scheme offering cash vouchers to central government employees which could be used to buy non-food GST-rated items. LTC is an allowance given to central government employees to facilitate home travel as well as travel to different parts of the country. The decision has been taken in wake of coronavirus outbreak as employees will not be able to avail the LTC in the 2018-21 year block due to the ongoing pandemic.  

Under this LTC Cash Voucher Scheme, government employees can opt to receive full cash payment on leave encashment plus three times the ticket fare, to buy items which attract a GST of 12 per cent or more. These purchases have to be done in digital mode and a GST invoice will have to be produced to avail the benefit.

The FM said that LTC voucher scheme will boost total demand worth Rs 1 lakh crore, assuming that private sector spending through LTC tax benefit would be at least Rs 28,000 crore.

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Presently, the central government employees get LTC in a block of four years (two for hometown visits or one to all-India visit and one to hometown). However, for the first two 4-year blocks, three hometown visits and one all-India visit are permissible. The expenses that are covered under LTC are travel costs incurred on air, rail and bus fares, as per pay scale/entitlement. LTC is reimbursed and in addition, leave encashment of 10 days (pay + DA) is paid.

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As part of an employee's total CTC (cost-to-company), an employee can claim tax exemption under section 10(5) of the Income Tax Act, 1961, for expenses incurred for travelling when on leave anywhere in the country.  

The scheme is likely to boost spending and stimulate demand. If demand goes up based on the stimulus measures, it will have an impact on those people who have been affected by COVID-19 and are desperately looking for demand to keeps their business going, says FM.

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