The Hindu Business Line : Meal is now defined

ANY discussion on taxation of salaries has to deal with various types of perquisites provided by employers to employees. Software and BPO companies have been on a recruitment binge, keeping HR managers on their toes.

In today's rapidly changing world, the need for higher cash incentives is top on the agenda of even a fresh recruit. It is in this context that the entire scheme of salary and perquisite taxation has to be viewed. Instead, what one witnesses is only piecemeal changes mostly ad hoc clarifications which have not really served any purpose in the immediate or long-term time horizon.

Recently, the CBDT issued a notification (dated November 3, 2004) amending the Income-tax Rules 2004 (2004 270 ITR (St) 119) with respect to housing and free meals.

Housing

The basis of evaluating perquisite value for residential accommodation provided by the employer to an employee is basically at the rate of 10 per cent of the salary or 7 per cent of the salary depending on the location and the population. This is provided in Rule 3 and also covers situations where an employee is provided temporary accommodation in a hotel, particularly where he is in a transferable job.

The proviso to this rule states that this perquisite will not apply to accommodation provided in remote area. This proviso is being amended and the comparison is given in the table `Remote area revisited'.

The expanded proviso now covers dam sites and power generation sites which was not there in the earlier proviso. Secondly, the type of accommodation is also spelt out with 800 square feet being the outer limit and it should be 8 km away from municipal limits.

Free meals

The existing Rule 3 sub-clause 7 provides that the value of free meals provided by the employer to an employee shall be the amount of expenditure incurred by the employer as reduced by any amount recovered from him.

There was a proviso to this rule stating that perquisite value for free meals will not apply if they are provided during office hours subject to Rs 50 per meal. This proviso is now being amended and substituted by a new proviso and the comparison is as shown in the table `What's in a meal'.

One noticeable change is that the words "free meal" have been substituted by "free food and non-alcoholic beverages". Therefore, the lawmakers have now sought to define the concept of a meal. The new rule has expanded the scope of exception to include not only food but also non-alcoholic beverages. Indirectly, the rule mandates that alcoholic beverages are not to be provided during office hours. The limit of Rs 50 per meal has not been increased or upgraded. One fails to understand how a proper lunch, including beverages, can be provided at measly Rs 50 per head.

These are at best piecemeal changes made with no rationale or objective in mind. Provision for food during office hours is only a facility to improve the efficiency and productivity of the employee. One fails to understand how this should be the subject matter of interpretation and debate in the area of taxation of perquisites.

In today's world of business and commerce should one still nitpick on whether Rs 50 per meal is adequate or whether alcoholic or non-alcoholic beverage should be provided during office hours?

(The author is a Chennai-based chartered accountant.)