Are Your Meal Vouchers Compliant? Key Insights and Solutions for HR Managers in India

Dear HR Managers,

I would like to inform all of you that if you are issuing meal vouchers to your employees in India, you need to look at the fine print that the voucher companies have mentioned on the contract as well as on the back of the vouchers to indemnify themselves from the risk that you as a company might be taking on yourself or on your employees.

As per the IT notification dated December 2009, meal value is not taxable in the hands of the employees if:

1) Free or subsidized meals are provided by the company to the employees.

2) If the allowance is provided through meal vouchers that fulfill the following criteria:

a) Should not be transferable.

b) Should be usable only in eating joints - no grocery purchase.

c) Usable only at the rate of Rs 50/- per meal.

d) Used during working hours by the employees.

These conditions are well understood by the voucher companies, and appropriate statements are included in the "terms and conditions" section of the contract, behind each meal voucher, and on their website that protects them well. The tone of the notification clearly points at promoting canteen setups within the companies. Next time your Sodexo sales guy tells you to issue meal vouchers to your employees at a rate of more than Rs 50/- per meal, do check the following with him:

1) At what rate is his own company providing meal allowance to him? Is this lower than what he used to get till December 2009? Ask for proofs and be careful about the legal opinion they will flash from a rather seedy lawyer.

2) Can they indemnify your company if the employees are penalized for misuse? Can your employees transfer the vouchers and use them for grocery purchase in retail malls and also exhaust the entire booklet in one shot?

3) Are the vouchers going to be treated at par with cash in their outlets? If not, think if you are indeed profitable after saving tax on the voucher and paying at a higher rate for your purchases. Think about the hassles, risk of loss, advance payment... My calculation says, on average, all your employees would save ~14% tax and lose well over 16%.

Recently, I came to know from some sources that the Income Tax Department has taken the misuse of meal vouchers by employees very seriously and is working on steps that may lead to penal action. I would like you all to take legal advice and be safe. But yes, I have only raised issues with meal vouchers. I am sure you would be looking for solutions. I suggest the following solutions:

1) Focus on your own cafeteria and provide free or subsidized meals to your employees. Employees not using the cafeteria could be compensated. This can be easily done if you manage this electronically. Camp Card Solution (P) Ltd Mumbai has done it for us. You can also approach others as well like Miracle Software (P) Ltd, Pune, all leading banks, Cubex India Solutions, etc. Banks like HDFC, Citi, Axis have their meal cards which you can provide to your employees and ask the bank to deploy their card terminal in your cafeteria and restrict usage of the card on that terminal only. However, in campus transactions, smart cards especially contactless cards score over magnetic strip cards of the bank. I would recommend Campcard's system both in terms of their quality, focus on the product, service standards as well as their overall understanding of meal allowance laws.

2) Provide meal vouchers to your employees and launch an awareness campaign among the employees with the conditions of usage and take written commitments from them on the usage.

I would welcome other HR managers to contribute to this so that I can post a ready reckoner on meal vouchers for everybody's reference and also update the same on an ongoing basis. I have mentioned one topic and wish similar other topics relevant for HR managers be picked up and championed by our fellow colleagues for the larger benefit!

Warm regards,

Manjari

Thank you so much for the useful update. I had actually been contemplating this matter for quite some time. Your timely input is greatly appreciated. I acknowledge the effort you have put in to gather and organize such a wealth of information and share it here.

Regards,
M.V. KANNAN

Thank you, Mr. Kannan! I would also request you to share your inputs that I might have missed out here. I am requesting other HR managers as well for their contributions.

Regards,
Manjari

Dear Traint,

With reference to "b) Should be usable only in eating joints - No grocery purchase"; do you have any information on whether any directives/notifications have been issued to grocery and other stores - 'non-eating joints' - not to accept such meal vouchers? One can still find some large-format retail stores/malls (not having any eating facility) still accepting such vouchers.

Warm regards.

Dear Mr. Akshay,

I am proud if you feel I am talking about a lesser-known subject, as these are the cracks that more often than not, we tend to relegate to levels in pursuit of a "big bang theory" that has led to court battles for companies. I have started this discussion to seek inputs from all members and hence would like to abstain from one-to-one discussions as mentioned by you. Should there be anything that you want to discuss with me, you are welcome to post the same on this site for the larger interest of all.

Warm regards, Manjari

Dear Raj,

Yes, you are right in your observation that non-eating joints still accept meal vouchers. I believe the same could be because of one or more of these:

1) Earlier laws on meal allowance were not clear on this, and the clarity detailed in the recent notification has perhaps not reached such outlets. Questions we need to ponder over are: who is responsible for this? Who is at risk? What can be the impact? etc.

2) Outlets accepting meal vouchers are affiliated by the voucher companies for us. If they have signed up with such companies intentionally withholding the legal aspect, the outlets are bound to accept. Again, the question in point 1 above remains... I understand that the contract that these voucher companies sign with the outlets mentions that the outlet is responsible for adhering to the law. I don't know if most of the outlets would have read and understood the legalities...

3) The voucher companies have already indemnified themselves in the contract that they have signed with you, maybe mentioning that "it is not a contract, it is just a registration document that our company policy requires" and hence are least bothered of any hassles that you and your employees may face.

4) Never has the meal allowance law been clear enough, and the voucher companies (I believe) have been leveraging the same basis various interpretations. I salute Mr. Modi who was in the chair in the Central Board of Direct Taxes (CBDT) in 2005 when the law was the same as what is mentioned in the current notification. He had regulated the voucher companies wherein they had to re-configure the outlets that accept meal vouchers. "No grocery outlet was allowed to accept vouchers." Subsequently, the law changed with the introduction of FBT. But today, when the same old law is back, who is taking charge? Is Mr. Modi listening? Is the IT department listening, or is their bandwidth choked with various other scams... Are we (as employees) preparing them for the next scam? I am sure not!

Hope this answers your queries. I would appreciate your comments on the insights. I once again urge all members to respond to the posts with their inputs so that the knowledge shared helps all of us... Thanks to all of you in advance!

Warm regards, Manjari

Dear 28677c5420521383353edc6e6,

I am sorry to address you as above and would have liked to address you personally if you had mentioned your name in your post. I hope there is no other reason for you to hide your identity!

I empathize with you on various taxes levied by the Indian government. I agree with you that there should be a constant focus to check mega frauds. But would that really address your pain? Your pain (according to me) will get addressed when ALL OF US do not think about evading tax and contribute the right amount to the government. I feel if even most of us (especially businessmen) do this, the government will think about decreasing the tax rate and will give us the right to talk and challenge the government. We all can begin by understanding and adhering to the law on meal allowance while using meal vouchers. They are:

1) Use the meal vouchers yourself. Do not give it to your wife even.
2) Use the same only when you are at work.
3) Use it only at the rate of Rs 50/- per meal.
4) Use it only in eating joints. Do not purchase groceries. Rather challenge the outlet if he accepts it.

Warm regards, Manjari

Dear Manjari,

Thanks for your response to my post, as well as others' posts.

I agree with your views, especially the ones quoted below:

"when ALL OF US do not think about evading tax and contribute the right amount to the government. I feel if even most of us (esp. businessmen) do this, the government will think about decreasing the tax rate and will give us the right to talk and challenge the government. We all can begin by understanding and adhering to the law on meal allowance while using meal vouchers. They are:

1) Use the meal vouchers yourself. Do not give them to your wife.

2) Use them only when you are at work.

3) Use them only at the rate of Rs 50/- per meal.

4) Use them only in eating joints. Do not purchase groceries. Rather challenge the outlet if they accept it.

It reminds me of what Mahatma Gandhi said, "You must be the change you want to see in the world."

This is not to question your identity or bonafides; and you may choose not to answer; but I am curious to know whether you are a 'lobbyist' working for an organization/cause or out of your own conviction/passion.

Warm regards.

Dear Mr. Hansdah,

Thank you for your encouraging statements and quote. We must be the change agent!!

Regarding your question to me, I am quite open to share my identity. I had worked deeply on this subject sometime back when I was working for a reputed organization. The sheer hard work on the subject had created some attachment with the subject. In the recent past, there were many posts on the subject that were misleading. I saw rampant misuse of meal vouchers in modern retail formats. I ignored these for long. But, as you mentioned, "we must be the change..." one day I thought of just sharing what I believe I know reasonably well with a wish to educate and help people! I am not a lobbyist for sure!

Warm regards, Manjari

@Manjari

Try being the change you want to see in the world and let me know the results. Gandhiji was a great man, and he had said this in a different era, keeping a different context in mind. I bet if Gandhiji were in this era, he would have something different in mind, looking at the way the world works right here, right now! Hypocrisy is when the people who talk about the benefits of a bullock-cart travel in comfortable four-wheelers, and you don't need to teach people here how to act hypocritical.

This is India, and over here, big talks and classic sayings are used by cheats to mislead. No offense meant to you. It's not for nothing that worldwide we rank very high on one thing, and that is corruption. Don't believe what I say; instead, take the newspaper, read, and judge.

Regards,
better face facts rather than giving a face to facts