Crores for economy, Festive Scheme for Sarkari Babus; Is this FM Sitharaman's gift?

Source :Sify
Author :Finance Desk
Last Updated: Tue, Oct 13th, 2020, 16:22:00hrs
Nirmala Sitharaman

Ever since news of Finance Minister Nirmala Sitharaman announcing a change in leave and advance policy, there have been frequent searches related to the new policy.

On Monday, Finance Minister Nirmala Sitharaman announced two major policies - first, a cash voucher based Leave Travel policy. And, second, a festive advance for central and state government employees for spending on festivals of their choice. The validity of the scheme is up to March 31, 2021.

Speaking about the leave travel policy, Sitharaman said, "Central government employees, in a block of four years - between 2017-18 and 2020-21 - employees would have normally availed of one leave travel concession for any destination of their choice plus one visit to their hometown. If they didn't choose leave travel to one destination of their choice, they would usually go twice to their native village. This would mean air or rail fare as per their pay scale is reimbursed to them. In addition, they also get ten days of leave encashment, which they pay tax on. The travel fare is tax exempt."

Elaborating on what changes with the new system, she explained, "Many of them don't want to (travel) because of COVID-19. Instead, what we are offering is to give the money to them based on three slabs - as per government rules and procedures - they could spend it to buy something of their choice. These are flat rate slabs equivalent to the round ticket fare they would have spent. This must be spent on items that have 12% GST or more; for instance, you cannot use it to buy food that has 5% GST slab. You can only spend them in digital mode only, no cash payments..."

For sarkari babus keen on using the scheme, the spending will have to be done from GST-registered sellers. "A GST invoice would be required on the basis of which they will be reimbursed," she added.

According to the new rules, individuals will have to spend 3x of the amount equivalent to the return air/rail fare in order to qualify for the scheme.

Festive Advance Scheme:

The Special Festival Advance Scheme is a one-time policy that will allow non-gazetted officers with an advance of Rs 10,000. The FM said that previously with the 6th Pay Commission scheme, the ceiling amount was limited at Rs 4,500. There is no such scheme in the 7th pay structure.

The Finance minister elaborated, "A prepaid Rupay card will be given to the availees as an interest-free advance for use in any festival. We are not limiting it for any one festival or GST-only shops. You can spend it anywhere you want. But you cannot withdraw it as cash. The spending will have to be done by March 31, 2021. The bank charges for loading the card will be paid by the central government,"

How does it help economy?

The FM expressed confidence on the spending schemes reviving consumer spending and thereby helping improve the economy marred by Covid.

Sitharaman explained, "According to our estimates, the demand infusion into the economy from the Centre and PSUs would be Rs 19,000 crore. If 50% of States join in this, this could spur further demand of Rs 9,000 crore. These are conservative estimates..."

The additional consumer demand generated is expected to percolate into a Rs 28,000 crores. Another Rs 8,000 crores in consumer spending is expected from the policy on special festival advance scheme.

Elaborating in detail about the overall policies, Sitharaman said she expected a total additional demand of Rs 1 lakh crores.

"Measures to stimulate demand must not burden the common citizen through future inflation. We have kept that in mind. We have also kept in mind that this should not result in unsustainable government debt. Today's solutions should not cause tomorrow's problems..." she emphasized.

How straight-forward is the leave concession policy?

A central government employee may have to spend excess of Rs 1 lakh in order to claim leave travel concession of Rs 30,000. As per the LTC fare schedule provided by the finance ministry, the deemed airfare (round trip) for a person entitled to travel business class is Rs 36,000 while those entitled for economy class air travel and rail travel (any class) is Rs 20,000 and Rs 6,000, respectively.

What this means is that under the special cash package involving LTC, an individual will have to spend in excess of Rs 1,08,000, Rs 60,000 and Rs 18,000, respectively between now and March 31 to get fare reimbursement as per entitlement for unused portion of LTC.

Similarly, for getting 10 days' reimbursement of leave travel encashment available under LTC package to government employees, an individual will have to spend value equivalent to the encashment to get the refunds.

"The LTC money of government employees to buy consumer goods would dry up those funds for the travel sector. Additionally, it would also send a vote of no-confidence to the tourism travel and hospitality industry which was looking to get back on its feet after 'Unlock'. Since this (LTC) is a 4-year block scheme, it will also cut away funds for future travel demand source for the next year when the LTC block ends in 2021," Federation of Associations in Indian Tourism & Hospitality (FAITH) said, reacting to the government's announcements on Monday.

Under the new scheme, LTC reimbursement will only be considered if spending is done on items or services accounting for 12 per cent GST rate or more. So, this will rule out spending on food articles to claim LTC reimbursement. Also, reimbursement will only be made after GST vouchers are provided by an employee.

To be eligible under the scheme, an employee will have to opt for both leave encashment and LTC. Reimbursement under the scheme will also depend on the spending done by an individual. So, if full quota of spending is not done, the payment will be calculated based on actual level of spending. But in any case the actual level of spending should be more than LTC and encashment entitlement.

Full tax benefit will be given on full quota of entitlement of fare under LTC while leave encashment would be taxable. The government will amend income tax rules to permit tax exemption on deemed travel expenses of employees.

To allow individuals to get advance payment of LTC claims, it has been decided that an amount equivalent to 100 per cent of leave encashment and 50 per cent of the value of deemed fare will be paid as advance into the bank accounts of employees. The entire spending and claims has to be made by March 31, 2021.

On Monday, the Finance Minister also announced of giving a 50 year interest free loan of Rs 12,000 crores to states. This includes Rs 2,500 crore for the eight North Eastern States (Rs 200 crore each) and Uttarakhand and Himachal Pradesh will get Rs 450 crore each.

*With inputs from agencies.