Taxability of Prepaid Food Coupons (like Sodexo Coupons)

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.

So to sum up, here are some points about it:-

1. Tea or snacks provided by the employer during office hours is exempt from tax.
2. Meal or lunch allowance or refreshment allowance is a perquisite, taxable under Income Tax Act. However, if free meal (i.e., food and non-alcoholic beverages) voucher such as Sodexo Pass, is provided by the employer during office hours at office or business premises, up to Rs.50 per meal given to the employee is exempt from tax.
3. These meal vouchers (non-transferable) provided by employers’ should be encashed only at an eatery, a restaurant or a cafe.
4. Can the employer give 2 meal vouchers per person per day for 30 days a month? It depends upon the number of days of work by the employee. If the employee is taking two meals during office hours and works for 22 days, then he will be eligible for Rs.2200 worth of vouchers (i.e., 22 days * 2 * Rs.50). Any voucher/allowance given over and above this amount is taxable in the hands of the employee as taxable perquisite.
5. Can meal vouchers be used at department stores or super bazaars to buy household items? As per the provisions, the meal coupons are to be used/exchanged only at eating joints. However, the departmental stores or super bazaars accept the coupons and there is no mechanism for the employer to check whether the employee has used it at eating joint or at stores. So, practically, even if the coupons are used at stores, it is acceptable.
6. Should meal vouchers to be given on monthly basis? No. there is no rule as such. The employer can issue coupons on monthly or quarterly or whenever they wish.
7. Should this perquisite be shown in payslip? Not necessarily. It is a non-cash perq, it needn’t figure in payslip

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7 Income Tax Saving Options for Salaried individuals

At the end of every financial year, many tax payers frantically make investments to minimize taxes, without adequate knowledge of the various available options. The Income Tax Act offers many more incentives and allowances, apart from the popular 80C, which could reduce tax liability substantially for the salaried individuals. 

Here are 7 smart income tax saving options to help you save more and reduce taxes.

1. Salary Restructuring

Restructuring your salary may not always be possible. But if your company permits, or if you are on good terms with your HR department, restructuring a few components could reduce your tax liability

Opt for food coupons instead of lunch allowances, as they are exempt from tax up to Rs 60,000 p.a.

Include medical allowance, transport allowance, education allowance, uniform expenses (if any), and telephone expenses as part of salary. Produce bills of actual expenses incurred for these allowances to reduce tax.

Opt for the company car instead of using your own car, to reduce high perquisite taxation.

2. Utilizing Section 80C

Section 80C offers a maximum deduction of up to Rs. 1, 00,000. Utilize this section to the fullest by investing in any of the available investment options. A few of the options are as follows.

 -Public Provident Fund

 -Life Insurance Premium

 -National Savings Certificate

 -Equity Linked Savings Scheme

 -5 year FD (Fixed Deposit) with banks and post office.

 -Tuition fees paid for children’s education, up to a maximum of 2 children.

3. Options beyond 80C

If you have exhausted your limit of one lakh under section 80C, here are a few more options.

• Section 80D– Deduction of Rs. 15,000 for medical insurance of self, spouse and dependent children and Rs. 20,000 for medical insurance of parents above 65 years.
• Section 80CCF - Deduction of Rs 20,000, in addition to the Rs 1 lakh under 80C, for investments in notified infrastructure bonds.
• Section 80G- Donations to specified funds or charitable institutions.
• Section 80 CCG - Section 80 CCG of the Income Tax Act permits a maximum deduction of Rs 25,000 per year, with specified individual residents eligible for this deduction. Investments in equity savings schemes notified by the government are permitted for deductions, subject to the limit being 50% of the amount invested.

4. House Rent Allowance

Are you paying rent, yet not receiving any HRA from your company? The least of the following could be claimed under Section 80GG.

• 25% of the total income or,
• Rs 2,000 per month or,
• Excess of rent paid over 10% of total income

This deduction will however not be allowed, if you, your spouse or minor child owns a residential accommodation in the location where you reside or perform office duties.

If HRA forms part of your salary, then the minimum of the following three is available as exemption.

• The actual HRA received from your employer
• The actual rent paid by you for the house, minus 10% of your salary (this includes basic + dearness allowance, if any)
• 50% of your basic salary (for a metro) or 40% of your basic salary (for non-metro).

5. Tax Saving from Home Loans

Use your home loan efficiently to save more tax. The principal component of your loan, is included under Section 80c, offering a deduction up to Rs. 1, 00,000. The interest portion offers a deduction up to Rs. 1, 50,000 separately under Section 24.

6. Leave Travel Allowance

Use your Leave Travel Allowance for your holidays, which is available twice in a block of four years. In case you have been unable to claim the benefit in a particular 4 year block, you could now carry forward one journey to the succeeding block and claim it in the first calendar year of that block. Thus, you may be eligible for three exemptions in that block.

7. Tax on Bonus

A bonus from your employer is fully taxable in the year in which you receive it. However request your employer for the following.

• If you anticipate tax rates to be reduced or slabs to be modified in the subsequent year, see if you could push the bonus payment to the subsequent year.
• Produce your tax investment details well before, to prevent your employer from deducting tax on bonus before handing it over.

A Final Word

Keep in mind the below points, to avoid the hassles of last minute tax planning.

• Give your employer details loans and tax saving investments before hand, to prevent any excess deduction.
• Check the Form 16 received at the end of each year from your employer thoroughly.
• It is important to start your tax planning well before 31st March, and to file your returns before the 31st of July each year.

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