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5 facts regarding Food coupons / meal pass and its tax implications

Food coupons

Many companies give food coupons/ meal pass to their employees and do not deduct tax on it. As a Compensation & Benefit manager,  you should know followings before exercising option of food coupons / meal pass.

Following is the abstract of the perquisite valuation rule governing issuance of meal vouchers

(iii)   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 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.

FAQ 1: What is the maximum value of food coupons which can be issued to an employee in a month?

From the rule it is clear that Rs 50/- per meal is free from tax. Please note that the tax exemption is to be calculated on a per-meal basis and not on a per-month basis.

Example : If an employee consumes two meals a day using meal vouchers in a working day and works for 26 days in a month (Sunday being week off), then meal vouchers can be tax exempt only to the extent of Rs. 2,600 per month (Rs. 50 per meal x 2 x 26 days).

FAQ 2  : What does meal means in this rule?

“Meal” should mean for breakfast, lunch, and dinner.

FAQ 3: Do we need to also keep record of employee leaves?

Yes, the reason is simple. Meal passes/ food coupons are tax free when it is consumed during working hours. If an employee takes leave for 6 days in a month where Sunday is week off, it means employee has worked only 20 days hence considering two meals in a day, Rs 2000/- will be tax free and Rs 600/- food coupons will be taxable, if company gives Rs 2600/- food coupons to employee.

FAQ 4: How company ensures that employee is spending food coupons on food only?

Employers can not do so hence employer can take declaration from employee that employee will use it only for food or send a communication to employees to adhere the rules.

FAQ 5: What should be ideal amount of tax free food coupons for an employee in a month?

As mentioned earlier an employee is allowed Rs 50/- per meal during working hour. I believe that an employee can only have one meal in a day during working hour and if there are 22 days in a month (Saturday and Sunday off) and also two days leave in a month, employee should be given Rs 1000/- food coupons for a month (Rs 50 x one meal in a day x 20 working days in a month).

Refer my previous blog Must to know about designing CTC-Cost to Company of an employee to know about various components of salary structure and how it impacts employee’s tax

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