Dear Kannan
Thanks for your response.My question is from employer's pont of view.My point is if a company gets exemption for incurring expenses for running a canteen and providing subsidy on food items under Income Tax, then whether it can claim exemtions for canteen and foud coupons under different items of exemption. If not, is the employer providing the food coupons soley to provide an income tax reief to employees by not paying for these expenses through salary.This is for my information and learning.
B.Saikumar
HR & Labour Law advisor
Mumbai
From India, Mumbai
1899Thanks for your response.My question is from employer's pont of view.My point is if a company gets exemption for incurring expenses for running a canteen and providing subsidy on food items under Income Tax, then whether it can claim exemtions for canteen and foud coupons under different items of exemption. If not, is the employer providing the food coupons soley to provide an income tax reief to employees by not paying for these expenses through salary.This is for my information and learning.
B.Saikumar
HR & Labour Law advisor
Mumbai
From India, Mumbai
Hi All..!!
There seems to be lot of confusions wrt taxation of meal coupons. Have found an article in Simple Tax India, which is copied below for the benefit of members. Hope this clarifies your doubts..!! :)
Quote
There are a number of organizations which are issuing food coupons/meal vouchers to employees each month not adhering to perquisite valuation rules issued by the Income Tax Department. Let us examine the text of 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 perquisite valuation rule governing issuance of meal vouchers is as follows.
(iii) The value of free food and non-alcoholic beverages provided by the employer 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 clause shall apply to free food and non-alcoholic beverages provided by such employer during working hours at office or business premises or through paid vouchers which are not transferable and usable only at eating joints, to the extent the value thereof either case does not exceed fifty rupees 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 off-shore installation.
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.
Unquote
Best Regards,
Divakar
From India, Bangalore
There seems to be lot of confusions wrt taxation of meal coupons. Have found an article in Simple Tax India, which is copied below for the benefit of members. Hope this clarifies your doubts..!! :)
Quote
There are a number of organizations which are issuing food coupons/meal vouchers to employees each month not adhering to perquisite valuation rules issued by the Income Tax Department. Let us examine the text of 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 perquisite valuation rule governing issuance of meal vouchers is as follows.
(iii) The value of free food and non-alcoholic beverages provided by the employer 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 clause shall apply to free food and non-alcoholic beverages provided by such employer during working hours at office or business premises or through paid vouchers which are not transferable and usable only at eating joints, to the extent the value thereof either case does not exceed fifty rupees 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 off-shore installation.
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.
Unquote
Best Regards,
Divakar
From India, Bangalore
Please Note,
Both benefits i.e canteen facility (free or subsidised) and free meal coupons cannot be provided to employees and claim exemption. Rule 3(7) iii of IT Act is clear that the free food or non-alcoholic beverages provided to employees during working hours, at office or business premises or through paid vouchers.
This benefit is not cumulative - i.e provide free food in canteen as well as give food coupons. It seems to be mis interpretations of law! If found out these expenses can be disallowed for IT purposes in employers books also!
Best Regards,
Divakar
From India, Bangalore
Both benefits i.e canteen facility (free or subsidised) and free meal coupons cannot be provided to employees and claim exemption. Rule 3(7) iii of IT Act is clear that the free food or non-alcoholic beverages provided to employees during working hours, at office or business premises or through paid vouchers.
This benefit is not cumulative - i.e provide free food in canteen as well as give food coupons. It seems to be mis interpretations of law! If found out these expenses can be disallowed for IT purposes in employers books also!
Best Regards,
Divakar
From India, Bangalore
Dear Diwakar Shetty Thanks a lot for sharing a vital and useful input on canteens and food coupons and clarifying it from income tax perspective. Excellent. B.Saikumar HR & labour Law Advisor Mumbai
From India, Mumbai
From India, Mumbai
Dear Sharmila,
I think food coupons aren't being taken into account of process of salary account hence it will automatically exempted from Income Tax. Matter is that since the company has provided canteen facility to their workmen hence in this regard food coupons are provided to purchase food on sale account by the canteen. Some company's do provide canteen facility on payment of a nominal charge for food stuffs it is totally based on subsidy provided to canteens. Some canteens run on no profit no loss system, in this employees has to pay charges amount for food stuff.,
From India, Jamshedpur
I think food coupons aren't being taken into account of process of salary account hence it will automatically exempted from Income Tax. Matter is that since the company has provided canteen facility to their workmen hence in this regard food coupons are provided to purchase food on sale account by the canteen. Some company's do provide canteen facility on payment of a nominal charge for food stuffs it is totally based on subsidy provided to canteens. Some canteens run on no profit no loss system, in this employees has to pay charges amount for food stuff.,
From India, Jamshedpur
As i m aware about canteen facility in any company, coupans are only allowed for guest or non employee. Canteen employee punch their card and software deduct amount from their salary as fix rate (PRACTICE IN MY COMPANY). I think canteen amount does not comes under CTC. Company can fix a rate per meal and deduction may from once in a month at salary time..........
Regards
Monu
From India, Noida
Regards
Monu
From India, Noida
One may find it impressive to see such issues of Employee Welfare being discussed so thread bare and in depth.
In fact, even the IT department has not looked into these issues with such a magnifying glass. One has not heard of any employer or employee being penalized for extending these benefits to the employees.
So, the point at issue here is not about tax compliances; as it is a common knowledge how even big companies have been finding ways to avoid taxes, worth several thousand crores of Rupees; and such cases make headline news.
One is constrained to think that the real issue issue for HRs here is how to curtail or reduce employee benefits and get a pat or reward from the management.
I beg your pardon in case it offends some HRs.
Warm regards.
From India, Delhi
In fact, even the IT department has not looked into these issues with such a magnifying glass. One has not heard of any employer or employee being penalized for extending these benefits to the employees.
So, the point at issue here is not about tax compliances; as it is a common knowledge how even big companies have been finding ways to avoid taxes, worth several thousand crores of Rupees; and such cases make headline news.
One is constrained to think that the real issue issue for HRs here is how to curtail or reduce employee benefits and get a pat or reward from the management.
I beg your pardon in case it offends some HRs.
Warm regards.
From India, Delhi
Dear Mr. Kannan,
Food coupons are not divised to get income tax benefit. Income tax benefit was provided if meal vouchers are provided to buy food (not grossories in departmental store), if free food is not provided to them. Canteens are compulsory for a factory employing 250 workers or more and hence for all other catagories, meal voucher concept was introduced.
There are companies provide Rs 5,000/- worth vouchers still don't tax them. Its for tax department to check these issues but this doesn't mean that they are legally and morally correct. I have seen IT companies paying thier employees more that Rs 10K as convenyance allowance and not tax it, whether they own a vehicle or not. Now if we start arguing that there are many who evade taxes, we may not go further. Employee benefit or welfare should not be the reason for taking such stand.
From India, Bangalore
Food coupons are not divised to get income tax benefit. Income tax benefit was provided if meal vouchers are provided to buy food (not grossories in departmental store), if free food is not provided to them. Canteens are compulsory for a factory employing 250 workers or more and hence for all other catagories, meal voucher concept was introduced.
There are companies provide Rs 5,000/- worth vouchers still don't tax them. Its for tax department to check these issues but this doesn't mean that they are legally and morally correct. I have seen IT companies paying thier employees more that Rs 10K as convenyance allowance and not tax it, whether they own a vehicle or not. Now if we start arguing that there are many who evade taxes, we may not go further. Employee benefit or welfare should not be the reason for taking such stand.
From India, Bangalore
Community Support and Knowledge-base on business, career and organisational prospects and issues - Register and Log In to CiteHR and post your query, download formats and be part of a fostered community of professionals.
Canteen Policy.doc