Taxation and FBT Implications of Meal Vouchers: A Comprehensive Analysis

The Finance team has just been advised that with FBT being withdrawn, Sodexo Vouchers will be taxed. The taxes have to be paid from 1st April 2009. I rue the day the vouchers were introduced - lots of mess with distribution, etc., and now all employees are coming back with tax queries.

It's much better to give the same money in salary rather than give vouchers; a lot of time, resources, and money will be saved.

Dear Mr. Aakash,

As per my knowledge, there is no such change in the taxability of the meal or gift vouchers. Kindly ask the person advising your finance team for the reference of the change in law which has led to this opinion, please.

If possible, please also post the change in law on this site for the benefit of all the members.

As per Rule 3(7)(iii) of IT Rules, the perquisite of a free meal provided to an employee by an employer is a taxable perquisite. The excerpts of the said rule are as follows:

(iii) The value of free food and non-alcoholic beverages provided by the employer, who is not liable to pay fringe benefit tax under Chapter XIIH of the Act, to an employee shall be the amount of expenditure incurred by such employer. The amount so determined shall be reduced by the amount, if any, paid or recovered from the employee for such benefit or amenity:

Provided that nothing contained in this sub-rule shall apply to free food and non-alcoholic beverages provided by such employer during working hours at the office or business premises or through paid vouchers which are not transferable and usable only at eating joints, to the extent the value thereof in either case does not exceed Rs. 50 per meal or to tea or snacks provided during working hours or to free food and non-alcoholic beverages during working hours provided in a remote area or an offshore installation.

Conclusion:
1. The maximum amount that is not considered a perquisite for free food is Rs. 50 per meal, but only if the food or meal pass is given, which can be utilized only at select joints.

2. Meals provided during working hours in the office, business premises, offshore, or remote locations are also not considered a perquisite.

Links:
- http://www.taxworry.com
- http://www.taxworry.com/2008/06/is-free-lunch-coupons-of-sodexho.html#idc-container

Every employee can enjoy tax-free Sodexho Pass Gift Vouchers.

However, gifts given would attract a Fringe Benefits Tax on the corporate at the rate of 6.7%(approximately) of the gifting volume.

No FBT on employer
The definition of ‘Fringe Benefit’ under the new chapter XII H (As per subsection (2) of section 115 WB of Income Tax Act, 1961), excludes-

1. Expenditure on, or payment for, food or beverages provided by the employer to his employee in office or factory;

2. Any expenditure on or payment through paid vouchers, which are not transferable and usable only at eating joints or outlets.

In this section, exemption has been granted completely for paid vouchers provided to the employees. Hence there is No FBT on employer on Sodexho Pass meal vouchers given to employees.

Tax free for employees
With the shifting of tax liability on employer from employees in respect to certain fringe benefits, these fringe benefits, which were hitherto taxable in the hands of employees as perquisite, will no longer be taxable in their hands. Thus those items now chargeable to tax under FBT (Chapter XII-H) have been deleted from Rule 3, which dealt with valuation of perquisites in the hands of the employee. Paid Vouchers being one of the items.

Further, Rules for valuation of perquisites have been amended and clause (vi) has been inserted under Section 17(2) vide notification no. 68/2005 dated 28th February, 2005, as follows:
(2) “perquisite” includes-

(vi) the value of any other fringe benefit or amenity (excluding the fringe benefits chargeable to tax under Chapter XII-H) as may be prescribed:

Since, paid vouchers have been covered under chapter XII H and are also not a prescribed perquisite for valuation they will not be taxable in the hands of employees.

Law on Fringe Benefit Tax: Meal Voucher

Sodexo has been printing thousands of crores of vouchers from a factory that does not have a factory license for many years. The company is in big trouble, as notices have been issued to the company.

Hi Parisha,

I went through your suggested site and unfortunately feel that the suggested company is not aware of the laws governing the meal vouchers. I have the following queries unless yours was an advertisement of your company's offering:

1. There are only two merchants, that too in Pune, accepting your card.
2. Your card allows the purchase of any product when the meal vouchers are supposed to be used only for food and non-alcoholic beverages.
3. You cannot load any value on a card or purchase vouchers on your meal vouchers and claim tax benefits. The same needs to be provided to the employees by the employer as salary.

However, your product is interesting. I know of a company, I forget the name, that provides a meal allowance in a law-compliant manner over a contactless card like yours. You can reach Uma on 09920 44 6759. They provide the following services:

1. Consultancy for administering meal allowance as per current laws.
2. Provide a technology solution that helps you do away with the hassles of managing vouchers (procurement, storage, distribution, etc.).
3. Canteen transaction automation.

Regards,
SM