CA Neil Ganatra

As it is not possible to discuss all the perquisites in one article, let us discuss the taxability of a perquisite which is always in question – taxability of prepaid coupons say for example Sodexo coupons which are very famous. These days many employers are giving sodexo coupons to the employees. The value of the coupons varies from employer to employer. It is observed that many of such employers as well as their employees are under the impression that sodexo coupons are fully exempt and are not taxable as perquisites irrespective of the amount. This is not correct interpretation of law.

Rule (3)(7)(iii) dealing with such perquisites is reproduced here under for discussion.

‘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 in 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.’

As mentioned in the rule, the valuation of this perquisite is done taking the gross cost to the employer as reduced by an amount collected from the employee in this regards, i.e. at the net cost to employer. This perquisite is tax free only to the extent of Rs. 50 (max) per meal during the working hours. It is very important to understand that one has to consider the working hours of the organization to calculate the tax-free amount of this perquisite.

Sodexo coupons are actually paid vouchers referred in the proviso. However, most of employers don’t consider the words highlighted in the proviso reproduced above. The paid vouchers must be non-transferable and USABLE ONLY AT EATING JOINTS. The problem occurs here as sodexo coupons can be used not only at eating joints but also at other places like super/hypermarkets (eg. big bazaar). This means it can also be used for buying groceries or any other thing sold by such hypermarkets.

Hence, strictly going through the rule dealing with paid coupons, the intention of the legislature behind the said rule, sodexo (or any other such prepaid coupon which is usable at places other than eating joints also) are not tax free perquisite, in other-words are taxable perquisites.

However, if it is given as gift by employer to the employees and is not the part of the salary as perquisite, it can be considered as tax free provided its value is less than Rs. 5,000/-, under another rule.

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Republished with Amendments

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  1. KSD says:

    If Govt Of India gives a flat standard deduction of 1/2K per month per employee [as in the case of medicals] , all this un-necessary scams of food coupons can be avoided as “Everyone needs food daily to survive” !!

  2. sankar says:

    one of my client received 45000 p.m now company offers sodexo coupons RS. 3000 p.m which is reflected in the pay slip as a food allowance . now which amount should i consider for tax purpose.
    45000 or 45000 – 22 days *50 =43900

  3. Gupta says:

    Our employee is already providing subsidized food in canteen which in the premises only. So, in this case if employer also provide meal coupons to his employees than what would be the benefit which employee will get.
    For eg for Rs.58 meal employer is recovering Rs.28 only.

    Pls advice

    1. CA Bhanudas Parab says:

      If Employer is having Subsidies Canteen facility and also giving simultaneously Food Coupons. Then one need to check the operation of this.
      1. Whether Employees are redeeming Food coupons at subsidies canteen or not?. If yes, then no implications are coming out of this in my opinion.
      2. If employer is giving the subsidized canteen facility over and above the sodexho coupons. Then this subsidies amount needs to be taxable as perquisite to employee. At the same time Employer has to show this perquisite value in Salary grouping instead of Staff welfare grouping in the p&l.
      3. Any recoveries from the employees needs to be also checked in line with GST Provision. Whether GST is payable under reverse charge. This would be considered in line with Notice pay recovery from employee by Employer.

  4. Abhishek says:

    How do employer decide on no. of meals for a day for which coupons should be distributed to employees. Is it limited to one or can be 3 for general 9hrs shift

  5. Girish Khairnar says:

    But how would employer determine, “where employee is using Sodexo at market (for grocery) or restaurants (for having dinner with family)”, what is employer’s responsibility in this regard?

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October 2020