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Stimulus Package, With Conditions Apply

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Stimulus Package, With Conditions Apply
Vishav - 14 October 2020

The many caveats to avail the LTC cash voucher scheme announced by the government earlier this week have elicited a mixed response with some experts saying that this makes the scheme complicated and may “dampen the spirit”, while others believing that despite the conditions, there could be some takers for the scheme, thus boosting demand.

The government had on Monday announced an LTC cash voucher scheme, which allows full payment of leave encashment along with tax free fare payment by government employees. However, to avail the scheme, employees need to buy goods or services which would be three times the fare and one time leave encashment. Moreover, such purchase needs to be made via digital mode only on or before March 31, 2021only from a registered vendor. Also the goods and services which are to be purchased should be subjected to a GST of 12 per cent or more

According to Divakar Vijayasarathy, Founder and Managing Partner, DVS Advisors, since the announcements came with a "conditions apply" tag, it may dampen the spirit.

“The condition of the three times spending of the LTC would only push the middle class salaried population to postpone availing LTC to subsequent years in this block,” he said.

However, he added that the festival advance with only a single condition of digital spending, which is implemented through a RuPay prepaid card without any other frills, is “definitely a welcome one and is expected to be well received by the salaried class”.

“However, the estimate of increase in demand of around Rs 36000 crore as against estimated spending of Rs 11500 crore by the central government seems to be overstated. In the current scenario, expecting the private sector and the state governments to spend a similar amount cannot be justified. Except the LTC cash voucher which has too many frills attached to it, the other initiatives would definitely give impetus to the demand side,” he added.

Suresh Surana, Founder, RSM India, said the conditions may pose a hurdle. However, he added, it offers an alternate opportunity to taxpayers to claim LTC benefits in times of pandemic.

“The scheme provides tax exemption provided the taxpayer satisfies the consumer spending criteria. Thus, the LTC component which was initially tax exempt subject to incurring travel expenditure would now be subject to tax exemption on incurring specific consumer spending expenditure. Thus, the government has provided an alternative opportunity to the taxpayers to claim benefit of LTC which otherwise they would have to let go due to the ongoing crisis,” he said.

“Moreover, such consumer spending should be incurred on goods or services which attract a GST rate of 12 per cent or more. There are several products including consumer durables such as refrigerators, washing machine, certain category of vehicles, etc. which fall under the category. Thus, the alternative option rather enhances the scope of spending for the taxpayers and with the upcoming festive season, the taxpayer may indulge in products which are usually offered at a discounted price,” he said.

Jyoti Roy, Equity Strategist, Angel Broking, added that by imposing the clauses, the government is trying to make the scheme revenue natural so that the revenues foregone on the direct taxation front can be made up from additional GST collection.

“Given the pandemic, people may not want to travel any time in the near future and therefore government employees who have claimed only one LTC in the current block so far may also want to take advantage of the scheme and spend it on any planned purchases. Actual boost to spending would depend upon the number of government employees availing the scheme,” he said.

According to Akshay Hegde, Co-founder and Managing Director, ShakeDeal, since the economy is reeling with its worst recession in a long time and the pandemic hasn’t shown signs of easing, the conditional spend will help kickstart the economy in this festive season.

“Also, by limiting the benefits to non-food spend conditions such as white goods category, coupled with conditions for spend at GST registered vendors only, it would be interesting to see and monitor the efficacy of this scheme. According to me, LTC for the private sector is around one months basic salary. If they’re to spend three times that amount to save up on tax, it may not really be easy unless people have savings or spare money. Most people would not find this exciting enough to spend given due to the uncertainty in the job market and pay rises,” he concluded.

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