We find a number of organizations that issue food coupons/meal vouchers to employees each month not adhering to perquisite valuation rules issued by the Income Tax Department. Let us examine the perquisite valuation rule governing issuance of meal vouchers and study the underlying conditions that are to be satisfied for availing tax exemption on meal vouchers.
The above rule (Rule 3(7)(iii)) states that value of free food and non-alcoholic beverages or meal vouchers provided by the employer is exempt from income tax to the extent of Rs. 50 per meal. Please note that the tax exemption is to be calculated on a per-meal basis and not on a per-month basis. We find many organizations providing meal vouchers to the extent of Rs. 3,000 per month and not calculating any tax on the same. Some payroll managers argue that Rs. 50 per meal translates into Rs. 100 per day (assuming two meals per day) and finally into Rs. 3,000 per month (for 30 days) and hence meal vouchers are exempt to the extent of Rs. 3,000 per month.
For a meal voucher to be tax exempt to the extent of Rs. 50 per meal, the meal voucher should be used only during working hours. If an employee consumes two meals a day using meal vouchers in a working day and works for 22 days in a month (excluding holidays on Saturdays and Sundays), then meal vouchers can be tax exempt only to the extent of Rs. 2,200 per month (Rs. 50 per meal x 2 x 22 days). If the organization provides meal vouchers worth Rs. 3,000 for the month, then Rs. 800 (Rs. 3,000 – Rs. 2,200) shall be taxable in the hands of the employee.
“Meal” in this case should be understood to refer to breakfast, lunch, and dinner.
Please note that there is no restriction in Rule 3(7)(iii) on how many “meals” can be consumed each day for availing the Rs. 50 per meal exemption limit. One or two “meals” per day during working hours could be considered as reasonable.
In addition, the meal vouchers issued to employees should be non-transferable and used only in eating joints. Since tax exemption is restricted to Rs. 50 per meal, payroll managers would do well to issue meal vouchers only in Rs. 50 (or less) denomination. Issuance of meal vouchers of higher denomination (say, Rs. 100) may attract tax.
At the end of each month, payroll managers should make note of loss of pay and other leave days (Casual Leave etc.) of employees and correspondingly calculate the perquisite value for the meal vouchers issued.
While employers cannot keep track of whether food coupons/meal vouchers are used only during working hours and only in eating joints, payroll managers should inform employees regarding the tax rule governing meal vouchers, and ask employees to adhere to the rules from their end.