Background :-The Finance Act, 2008, w.e.f. from 1 April 2008, introduced a new concept of Electronic Meal Cards (‘EMC’), for the purpose of Fringe Benefit Tax (‘FBT’) on hospitality expenses. Hospitality expenses do not include any expenditure incurred by an employer on provision of EMCs (Section 115WB(2)(B)(iii) of the Income-tax Act, 1961), which fulfils the prescribed conditions. Accordingly, FBT will not be payable on expenditure incurred on such EMCs. Hospitality expenses are valued at 20% of the expense incurred for the purpose of FBT (except in case of certain industries).

 The CBDT has notified conditions for the purpose of valuation of hospitality expenses (Rule 40E(i) of the Income-tax Rules, 1962)  for the purpose of FBT.

The conditions prescribed with regard to EMCs are:

(i) The card shall be granted by the employer to its employees under a scheme framed by the employer specifying therein the circumstances under which the meal card can be used by the employee;

(ii) The above card shall be issued by the “issuing bank” (as defined);

(iii) An employee shall not be issued more than one card;

(iv) The card shall bear the name of the employer along with the name, photograph and signature of the employee to whom the card is issued;

(v) The card shall be used only by the employee to whom the card is issued;

(vi) The card shall be used by the employee only for the purpose of purchasing ready to eat food or non-alcoholic beverage from a “member establishment” (as defined);

(vii) The aggregate amount of ready to eat food or non-alcoholic beverage purchased during a day by an employee shall not exceed one hundred rupees; and

(viii) The details of each transaction of purchases made by the employee against the card shall be maintained by the employer and the member establishment in such manner and for such period as is required under the Act for any other similar transaction.

The explanation to the rule clarifies:

(i) “issuing bank” means a banking company as defined in the Act3–

a. which issues the card to the employees of an employer in pursuance to an agreement entered into with the employer; and

b. which has entered into a contract with the member establishment authorising him to allow purchases against the card issued by it in accordance with the conditions stipulated and

(ii) “member establishment” shall mean a restaurant, hotel, canteen or an outlet which sells ready to eat food or nonalcoholic beverage, but shall not include a restaurant, hotel, canteen or an outlet selling alcoholic beverage.

Comments :- With Electronic commerce gaining importance in India, EMCs will help the organisations and employees to keep track of expenditure incurred on food and beverages. It is important to note that now a limit of Rs 100 per day, per employee, has been specified for the EMCs.

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INCOME TAX NOTIFICATION NO. 1/2009, DATED 5-1-2009

INCOME-TAX ACT (FIRST AMENDMENT) RULES, 2009 IN SECTION OF RULE 40E

In exercise of the powers conferred by section 295 read with sub-clause (iii) of clause (B) of sub-section (2) of section 115WB of the income-tax Act, 1961 (43 of 1961), the Central Board of Direct Taxes hereby makes the following rules further to amend the Income-fax Rules, 1962, namely :

1. (i) These rules may be called the Income-tax (First Amendment) Rules, 2009.

(ii) They shall come into force with effect from the 1st day of April, 2009.

2. In the Income-Tax Rules, 1962, in Part VIIC, after rule 40D, the following rule shall be inserted, namely:

“Prescribed conditions for the purposes of sub-clause (iii) of clause (B) of sub-section (2) of section 115WB.

40E. For The purposes of sub-clause (iii) of clause (B) of sub-section (2) of section 115WB, the non-transferable pre-paid electronic meal card (hereinafter called The “card”) shall fulfill the following conditions, namely:

(i) The care shall be granted by the employer lo its employees under a scheme framed by the employer specifying therein the circumstances under which the meal card can be used by The employee.

(ii) The card under clause (i) shall be issued by the issuing bank.

(iii) An employee shall not be issued more than one card.

(iv) The card shall bear the name of the employer along with the name, photograph and signature of the employee to whom the card is issued.

(v) The card shall be used only .by the employee to whom the card is issued.

(vi) The card shall be used by the employee only for the purpose of purchasing ready to eat food or nonalcoholic beverage from a member establishment.

(vii) The aggregate amount of ready to eat food or nonalcoholic beverage purchased during a day by an employee shall not exceed one hundred rupees.

(viii) The details of each transaction of purchases made by the employee against the card shall be maintained by the employer and the member establishment in such manner and for such period as is required under the Act for any other similar transaction.

Explanation. – For the purposes of this rule,

(i) “banking company” shall have the same meaning as assigned to in clause (viii) of sub-section (1) of section 36 of the Act’

(ii) “issuing bank” means a banking company –

(a) which issues the card to the employees of an employer in pursuance to an agreement entered into with the employer,and

(b) which has entered into a contract with the member establishment authorizing him to allow purchases against the card, issued by it in accordance with the conditions stipulated in sub-clause (iii) of clause (B) of sub-section (2) of section 115WB and this rule,and

(iii) “member establishment” shall mean a restaurant, hotel, canteen or an outlet which sells ready to eat food or non-alcoholic beverage, but shall not include a restaurant, hotel, canteen or an outlet selling alcoholic beverage.”

[F. No. 133/70/2008- TPL]

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