Instructions regarding extent of expenditure incurred on food or beverages provided to employees by employers to be treated as entertainment expenditure under section 37(2)

1. Reference is invited to the Board’s Circular No. 644, dated 15-3-1993 (see  Sl. No. 371) wherein it was clarified that the expenditure on provision of food or beverages by an employer to the low-paid employees will not be treated as entertainment expenditure within the meaning of the Explanation under section 37(2) of the Income-tax Act, 1961 even if the facility is provided in places other than the place of work provided the same is provided during the working hours and the expenditure is genuine and reasonable. Representations have since been received for extending the benefit of the circular to all the employees irrespective of salary limits, subject to monetary limits on the expenditure.

2. The Board has since considered the matter and has decided that expenditure up to Rs. 35 per day per employee shall not be treated as in the nature of entertainment if the same is incurred on food or beverages even outside the place of work, but during working hours subject to proof of genuineness of the expenditure. In case the expenditure exceeds the above limit, only the excess over Rs. 35 per day per employee shall be treated as entertainment in nature within the meaning of Explanation under section 37(2) of the Act. In the hands of the employee, the amount up to Rs. 35 per day will not be treated as income, provided the amount is paid by the employer directly to the caterer, restaurant, eating place, canteen, etc.

3. This circular shall apply with reference to the expenditure incurred during the financial year 1995-96 relevant to the assessment year 1996-97 and subsequent years.

Circular : No 708, dated 18-7-1995 as amended by Circular No. 727, dated 27-10-1995.

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February 2024