Companies — both in the private and public sectors — give out meal coupons as a perk to their employees. This benefit is usually limited to ₹1,000-2,000 a month. Still, there are many restrictions on their usage because of the tax-free nature of the benefit. If you receive this perk, it is important to understand the many dos and don’ts involved.
How it works Employers pre-pay a certain amount per employee every month to a meal-payment service provider.
In return, they get pre-printed coupons or a prepaid card that is given to the employees. These can be used to pay for meals, ready-to-eat food items and non-alcoholic beverages at various outlets that accept this payment. The vendor then submits the coupons to claim payment from the service provider.
The benefit amount is not reported as a part of compensation by the employer and is therefore not part of the taxable income.
Many restrictions Being tax-free, the benefit has to meet requirements laid down by the Income Tax department. For example, IT rules say that the payment per meal should be limited to ₹50. The maximum amount per month may also be capped based on the number of working days. Typically, companies pay for two meals a day or limit to one meal and a certain amount for snacks and tea. Some employers may also cap the monthly payment after accounting for holidays and leave taken by the employee.
The rule also states that the benefit is meant to be used for food expenses during working hours and by the employee.
So, using it beyond regular working hours or on holidays is not permissible. Likewise, letting anyone other than the employee use the coupons is also disallowed. Many employers also get a declaration from the employees stating that the benefit is only used for meals and not for groceries or non-food purchases. Pre-paid coupon providers, such as Sodexo and Ticket Restaurant, also indicate the usage restrictions on the coupons for the benefit of the employee and the vendor.
Their service agreements with the outlets also list out the permissible items that can be purchased with the coupon.
Rampant violation However, there is little awareness about the rules relating to the benefits, among employers, individual users and vendors.
For instance, employers are known to provide ₹3,000-₹5,000 worth of food coupons. This cannot be justified with an eight-hour work day and a five- or six-day work week.
The onus to justify the higher perk amount would be on the employers and appropriate documentation must be maintained by them. The amount payable for tea and snacks is not set forth by the rules. But employers must ensure that the expense amount is not disproportionate to the expenditure incurred by the employee on meals.
Many IT companies such as Cognizant offer pre-paid cards. There seems to be differing views on whether cards are considered prepaid instruments for the purpose of meal coupon benefits. Pre-paid meal cards are only meant to ease transactions within the company premises and not as a replacement for cash.
Some companies which offer free or subsidised food also provide meal vouchers. This is perhaps not going by the rule which was meant for employees in establishments that do not provide free food facility. Many employers fail to educate their staff on the use of the coupons.
Even if the employers are not doing all they should, the onus lies on the employee. “The primary liability to offer the amount for tax rests on the employee concerned depending on the use of the vouchers,” says Suresh Surana, Founder, RSM Astute Consulting Group.
When there is an excess amount left over after paying for meals, employees must report it as taxable income.
But this does not happen, notes Divya Baweja, Partner, Deloitte Haskins & Sells LLP. They also use it for buying raw food or non-food items at grocery outlets that accept the coupons.
The coupons are also freely transferred and used by friends and family.
Likewise, vendors freely accept the coupons for all products, not just ready-to-eat food and non-alcoholic beverages.
In some cases, a food vendor takes payment through coupons and buys groceries with the coupons from a merchant, who in turn submits it to the service provider. However, given that the coupons are not traceable to a person or product that was bought, it is not easy to track down violations and enforce stringent rules.