Are Meal Coupons a Tax Loophole? Share Your Experience with Income Tax Notices

Public Interest Litigation on Meal Coupons and Tax Evasion

A PIL is being filed to avoid tax evasion through Meal Coupons. Has anyone received an Income Tax notice for the audit of Sodexo coupons?

Following is the email sent to the IT Department and charges raised in the PIL:

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Dear Sir/Madam,

This is with reference to the Meal Allowance paid through salary to employees in India.

Meal allowance in salary is a tax-exempt component, and therefore many companies give food coupons to employees. Ideally, it is to be used for ready-to-eat food and for meals taken in the office (or nearby office within working time).

However, the coupons are grossly misused to create parallel currency.

• The coupons are redeemed without the signature of the beneficiary. Thus, the usage becomes untraceable. Some vendors rotate/exchange the coupons as parallel currency. Is this legal? If not, why is the IT Department silent on this?

• How can grocery stores and malls accept such coupons if the allowance is for ready-to-eat meals? Isn't it illegal to claim a tax benefit for shopping for groceries?

• How can the coupons be redeemed in bulk? The exemption is for Rs 50 spent every day on a meal.

The Income Tax Department must issue notices to such food coupon vendors (Sodexo, Ticket Restaurants) to explicitly make these points clear to their customers. Also, the redeemed coupons should be checked randomly to confirm the signature at the back of the coupon. Companies should also be mandated to record the use of coupons since they claim income tax exemption for their employees on the basis of these coupons.

Millions of employees and their employers grossly misuse the benefit of Meal Allowance to avoid tax. The IT Department is requested to act and stop this tax fraud.

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That's exactly the objection taken in the email. The meal allowance is tax-exempt since it is used for buying food when you attend the office at a rate of Rs 50 per meal. So buying groceries is a violation of income tax. However, I think the IT Department will hold the employer responsible for this since the employer gives the coupons in bulk to employees.

Another violation is Meal Allowance given for days when the employee is on leave. If an employee is on leave, the meal allowance should be made taxable for those days. But many companies do not follow this. So such employers are liable for action by the IT department.

Regards,
Pranav

Do you think IT authorities are not aware of the usage of food coupons? After all, food coupons are converted into food only. If food coupons are taxable, what about gift vouchers up to ₹5000, which are exempt from tax? Why should you expect a tax concession for conveyance allowance? Why should you expect a tax concession for a housing loan for the house built for you and your family? Why should you expect a tax exemption for health club fees? There are more tax-saving components, and the FM and IT department must have taken all factors into account before deciding the tax applicability on various components of income.

Regards,
Pon

Understanding Allowances and Tax Compliance

All other allowances, like Conveyance and Home Loan, are used as per Income Tax guidelines. However, Sodexo is not utilized according to the guidelines, and that is easily traceable. For example, Conveyance is Rs 800 per month and does not require any proof or precondition. LTA is offered as per guidelines (once in 2 years, etc.), and even if employees submit fake bills, the employer will not be in trouble.

On the contrary, Meal Allowance is payable only for days present in the office at a rate of Rs 50 per meal. The expectation may not seem reasonable, but that is what the law states. So companies can face trouble if this is audited by the IT Department.

I received an NC in an internal audit since the auditors discovered that we didn't deduct the Sodexo amount for employees who were on leave in a particular month.

Regards,
Laxmi

In case of loss of pay (LOP) only, such deductions arise. Otherwise, no allowance is deductible, and leaves are adjusted from the earned leaves. Sodexo coupons are fully authentic and permitted by the IT Department. How can they transact in such volume without the approval of regulatory bodies? In many organizations, food coupons are part of the Cost to Company (CTC).

Regards,
Pon

Understanding Meal Allowance and Tax Implications

All allowances are paid as per salary payment, and they get prorated for Leave Without Pay (LOP). However, the text of the Meal Allowance clearly states it's for days present in the office. So even Earned Leaves do not qualify for tax exemption on the meal allowance.

Conveyance is for a month, and Leave Travel Allowance (LTA) is for a year, so it does not matter if the person is absent for a few days. However, Meal Allowance is a daily allowance, and therefore it is expected that Meal Allowance is not paid for leave days. Many companies have started following this by recording swipes and then multiplying it by Rs 50 a day for tax-exempt meal allowance.

However, companies offering Sodexo/Ticket Coupons do not deduct coupons for leaves. Ideally, the coupon value for leave days should become taxable.

When I was working at NSEiT in Mumbai way back in 2004, they had a nice system to handle this. At the beginning of every month, they used to give us coupons corresponding to the number of working days in the month (₹50 per meal * 2 meals per day * number of working days), and they used to subtract the number of leaves taken in the last month from the same.

At that time, I used to wonder why they did such complex calculations when our friends in other companies used to get a fixed amount. Later, I realized that the Income Tax rules clearly specify that the benefit is limited to the actual number of meals had by the employee at the workplace * ₹50 for each meal. No doubt NSEiT, being one of the consultants for the IT department, wanted to keep their slate clean.

Misuse of Meal Coupons in Companies

And by the way, this PIL is heading in the right direction because companies randomly give coupon booklets to their employees with scant respect for IT rules. I know some companies that provide food coupons worth $3000. This is a blatant misuse of the benefit.

Assuming 25 working days and Rs. 50 per day meal allowance allowed, it is presumed that Rs. 1250 coupons issued by the company to an employee, who has not taken any leave, are tax-free/legal. Am I right?

Companies giving Rs 3000 can be easily punished. If an employee claims three meals in the office, that means the employee has worked overtime (worked in two consecutive shifts). So, has the company paid overtime to all such employees who get Rs 3000 Sodexo? 

At the very outset, let me clarify that I am not a tax person, and my knowledge about taxation is very limited.

If the payments of Rs. 3000/- per month are for the current year, I think the question of punishment does not arise. What companies can do is consider any excess payment beyond the eligibility, i.e., more than Rs. 1100/1250, as taxable income. Of course, they have to inform employees accordingly before any tax deduction.

If the amounts relate to coupons issued in the previous year, I feel they can still make tax deductions wherever applicable and remit them to authorities, possibly with some penalties.

Tax Implications of Sodexo Coupons

P.S. Since Sodexo coupons, etc., have been operative for more than the past 10 years, I have strong doubts about the tax implications. There are huge chances that these companies have appropriate approvals from the IT department for the issuance of coupons, and accordingly, they must be convincing their customers, proving all legalities.

I shall make more inquiries into this and will update shortly since I know a few friends who receive such kinds of coupons from their employers.

Regards

All you guys seem to put so much emphasis on right and wrong, in terms of meal allowance being taxable or not and that it should be INR 50.00 a day, and a whole lot of other jargon related to the IT department and what they consider and how they consider it. However, we forget to take note that, except in maybe one or two cities, in which IT/ITES/BPO sector (location) can you find a meal (a whole decent lunch) for Rs. 50.00. As per some wisecrack sitting somewhere high up the bureaucratic ladder, anybody earning more than Rs. 45 a day is not considered to be BPL (Below Poverty Line). I know scores of people who may earn 5 times that amount and yet, life isn't exactly easy for them. I'm sure a lot of us will relate to that. My point being, at least our companies (MNCs) we work for understand and pay out extra so you can have that THALI costing Rs. 150.00, (or eat egg Maggi for Rs. 50.00). Then why are we spoiling a perfectly good thing? In a country that is governed by people who leave you needing more throughout our middle-class lives, why are we having a problem with something that, for once, is working out to our advantage? (Don't take me otherwise guys, it's just an opinion.)

Thanks & Regards,

Jintan Dinesh

Meal Allowance Exemption Under Income Tax

Meal allowance exempt under the income tax was specifically for meals at the office or during work hours on official work. Any other allowance would be taxable. When FBT was introduced, these coupons were made taxable. Then the change was made (after the two major coupon companies paid huge bribes to the finance ministry) they added such coupons to the meals. In reality and under existing law, the use of these coupons at any place other than for food at the workplace is taxable, and the income tax department can take action. I think the PIL will have a major impact on many companies and on these two coupon companies specifically.

In these days of ready-to-eat meals, which require just warming or heating, as well as ready-to-eat snacks, including biscuits, fruits, and fried wafers available in grocery stores, one can buy these with Sodexo coupons and eat. There are no regulations on what constitutes a meal. Packed foods by ITC or MTR just need to be warmed to be eaten.

An employee can take credit for days and pay the outstanding in bulk on a day with coupons. Where is the illegality in it? It is surprising that in the days of multi-crore scams taking place every week with alarming irregularity, such peanuts of payments for actual consumption by the common man are being examined so thoroughly! Instead of getting alarmed or agreeing with such insinuations against the hard-working, tax-paying working class, it was expected that people would stand up for their rights and perquisites, rather than succumbing meekly to pressure.

Warm regards.

Believe me, these are not small amounts. The amount of tax evasion is very high. It could make the politicians blush with shame at the missed opportunity. Most large retailers also want this stopped, and they have some very valid reasons.

Retailers' Support for Sodexo Coupons

In fact, large retailers are in favor of Sodexo coupons as they add considerably to their top and bottom lines. I have ascertained this from Big Bazaar, EasyDay, More, and Reliance Stores. Big Bazaar has already opened a few food counters that serve food items just to comply with IT regulations.

Challenges Faced by Salaried Individuals

Salaried people are the only class (unlike other professionals like consultants who can accept black money or enable others to make white money) who cannot escape their tax liabilities. Tax evasion is minimal, if any, because every family buys and consumes food items (even if a person brings food from home and does not spend the coupon every day). Invariably, it is used for buying food items in stores.

Believe me, the paltry tax-free amount of Rs. 1250 for a month cannot buy foodstuffs even for a single-person family for a month! So, how can a common salaried person evade a huge amount of money?

Reality Check on Coupon Usage

In any case, these coupons are not hoarded but invariably used in grocery stores. Only politicians, who are far away from the stark realities of life (like onions and tomatoes available at Rs. 80 per kg, average good rice at Rs. 60/kg, potatoes at 30/kg, etc.) and are used to figures of crores of rupees, can claim something of this nature!

In fact, it is high time that the salaried class demands that this amount, which has remained the same for quite a few years, be enhanced to at least 3 times, in view of the rising prices of consumables.

Having used Sodexo coupons myself, I was wondering if it helps me or hurts me. I am unaware of the legality terms, but here are some observations I have made:

1. Sodexo coupons are accepted at restaurants and malls to purchase ready meals, packed food, or cooked food.

2. Some retailers charge extra to accept Sodexo, or they do not accept Sodexo at all because they have to spend extra money from their pocket. This concept is similar to some retailers charging you extra when you pay by swiping your credit/debit cards.

3. The logical concept is that a meal of 50 Rs is not taxed and is paid on a daily basis. Therefore, we are supposed to give 50*2 = 100 Rs a day for meal allowance. Now, if a person brings a tiffin on a particular day, should we say that he is not eligible for a meal allowance?

4. Today, he wanted to have something special which he can't buy for 50 Rs. So, he used his meal voucher for the day he brought his tiffin. What's illegal about this?

5. I am not sure if there are companies that provide Sodexo coupons worth 3000 per month. I know of some firms that offer 1250 as food allowance, partly as cash and partly as Sodexo or the entire amount as Sodexo.

6. I agree that meal allowance is stated to be given for the days when the person is on duty - either in the office or outside. However, as someone rightly pointed out, if a person is in the field and cannot have a proper meal for 50 Rs as per IT regulations, how should he be compensated?

Reasons for Non-Acceptance of Sodexo and Meal Tickets by Restaurants

There is a reason why Sodexo and meal tickets are not accepted by restaurants. These include:

- High rate of commission charged (banks charge 1.5% for credit cards, Sodexo charges 2.5% to 7.5%).
- Delay in settling: minimum 45 days.
- Major reconciliation problems.
- Disputes relating to the authenticity of claims.
- High level of fraud due to duplicate/fake Sodexo coupons.

Unlike what our senior members just wrote, retailers like Big Bazaar and Reliance Fresh are not accepting these coupons happily. They are being coerced into accepting them since they are losing out on sales in a very competitive market. Most of them have realized that accepting the coupons is a direct loss as the discounts given are at times more than the margins on the sale. However, they are considering it as a loss leader and are content that their management has no way to measure whether the loss leader is resulting in profits in other areas.

Income Tax Implications of Using Sodexo Coupons

As for the rest of your query, the income tax department will not come after you personally. So it does not matter whether you are using the Sodexo coupons for buying clothes or for lunch. Since it's an allowance, it is to be given irrespective of whether the person is using it or not. It's like a conveyance allowance of Rs. 800 per month tax-free under the income tax laws, which is paid irrespective of whether you come to the office or not.

The income tax law has nothing that prevents you from reimbursing the cost of meals that are allowed under your own rules (earlier there was FBT, which has been removed). What is limited is the Food Allowance (which is a tax-free perquisite). I hope you understand the difference between the reimbursement of expenses incurred in connection with work and the allowance paid/payable.

Personal Experience with Sodexo Coupons

Having used Sodexo coupons myself, I was wondering if it helps me or hurts me. I am unaware of the legality terms, but here are some things that I have noticed:

1. Sodexo coupons are accepted at restaurants and malls to buy ready meals/packed food/cooked food.
2. Few retailers charge extra to accept Sodexo, or they don't accept Sodexo at all because they have to shed a few extra bucks from their pocket. (The concept is similar to some retailers charging you extra when you pay by swiping your credit/debit cards).
3. Though the logical concept is that a meal of 50 is not taxed and is paid on a daily basis, so we are to give 50*2 = 100 Rs a day for a meal allowance. Now, if the person on a said day brings a tiffin, should we say that he is not eligible for a meal allowance?
4. Today he wanted to have something special which he can't buy for 50 Rs, so he adjusted his meal voucher for the day he brought a tiffin. What's illegal in this?
5. I am unaware if there are companies that give Sodexo coupons worth 3000 pm. I have known a few firms giving 1250 as a food allowance, partly as cash and partly as Sodexo or the whole amount as Sodexo.
6. I agree with the fact that the meal allowance is mentioned to be given for the days when the person is on duty - either in the office or outside. However, as someone rightly mentioned, if the person is on the field and is unable to have a proper meal for 50 Rs as prescribed by the IT regulations, how to compensate him?

Regards

Yes, the concerns are understood. However, the PIL (language) seems to be blaming the customers/shoppers who pay with Sodexo coupons to buy whatever at groceries or wherever.

If the issue is that these outlets are, in one way or another, forced by such meal voucher companies, there should be a case against them.

Employee and HR Perspective

Secondly, as an employee as well as the HR, my argument is:

1. We would always prefer giving cash to employees as a meal allowance (whatever the prescribed limit).
2. We give Sodexo or other similar coupons because they are promoted as a tax-free item.
3. While conducting a study last year to understand this Meal Allowance, I came across a few links that mentioned if we give cash as a meal allowance, we attract tax beyond the prescribed limit. However, meal vouchers like Sodexo coupons are tax-free for the whole amount given as a meal allowance.

[Example - Since paid vouchers have been covered under Chapter XII H and are also not a prescribed perquisite for valuation, they will not be taxable in the hands of employees. Attribution https://www.citehr.com/136089-sodexh...#ixzz2l4pz4nu9. Can be encashed by anyone and for the purchase of groceries too. Attribution https://www.citehr.com/97630-sodexho...#ixzz2l4v1H5qd.]

In all this, who is at fault and who will be paying a price for it?

The concern and the point that I want to make is only this much: When things are wrongly promoted by the company, there is no point in blaming employees. Such meal coupon vending companies do say we can use them anywhere (even to buy groceries), so ideally, as an employee/layman, I am not violating the law as I trust the company that guided me before I opted for such meal coupons.

Again, as you mention, meal allowance is a concept similar to conveyance allowance—we get money for it irrespective of whether we use it for the prescribed purpose. I may be staying next door to the firm I work for, yet I am eligible to get 800 as my conveyance. Similarly, I should be getting my meal allowance. So if I am getting my meal allowance paid in cash, I would use this cash to buy flour and vegetables so that I can cook my tiffin. But if I get Sodexo or similar coupons, I use them to buy packet items or similar stuff so that I can pack my tiffin. How is this illegal? This is something I didn't understand.

The reason I am emphasizing this is because that is how the PIL has been framed.

Questions Raised in PIL

1. How can grocery stores and malls accept such coupons if the allowance is for ready-to-eat meals? Isn't it illegal to claim a tax benefit for shopping groceries?
2. How can the coupons be redeemed in bulk? The exemption is for Rs 50 spent every day on a meal. I gave a scenario in my last post and hope it is reasonable enough to spend it in bulk then.

Again, as you said, there are many places where such food coupons are not accepted, and we don't force them either. There are many instances wherein our coupons are wasted because they're about to expire and we don't have much on the list to buy (we never get a refund for those wasted coupons).

It's a 50-50 scenario for employees as well. They may be able to take some advantage once in a while, but most months, many denominations go wasted. Regarding tax saving, the amount of tax saved by these employees will match the amount wasted by such coupons. If Sodexo or similar companies profited, we should instead have proper means to tax such companies.

Ankita, you have hit the nail on the head. When FBT was in force, the coupons made sense as they were saving FBT. Now, they do not have any value as such. The only thing is that:

- Most HR/Finance departments in large companies have not bothered to review the matter, and inertia is continuing.
- It's done in other countries abroad, so it's done here by MNCs without realizing whether it's efficient in India.
- Accor and Sodexo stress the tax-free status without telling that even if they were to give the money as reimbursement, the matter would be the same for the company.

I have not read the PIL, so I don't know the wording. However, there was no logic to granting special status to these coupons except that there was probably a large amount of money paid to the minister to allow it to happen.

Regards.

Understanding Meal Allowance and Tax Implications

1. Please interpret the law carefully. The law states Rs 50 per meal, not Rs 50 per day. It does not define a meal. According to the honorable Supreme Court, if the definition is not specified in the law, leading dictionaries can be consulted. It also includes tea and snacks in the law. A snack is also defined as a light meal. There is absolutely no harm in taking two meals or even two and a half meals per day. Rs 50 for breakfast, Rs 50 for lunch, and Rs 25-35 for tea or a snack.

2. The law talks about working hours, not normal working hours. Working hours do not necessarily mean an employee has to sit in the office. IT company employees even work from home or work on Sundays. All this is considered as working hours. Overtime is also considered as working hours. The per-day allowance can be decided based on all these factors.

3. A valid point made by PON is that groceries are bought to prepare meals to be consumed during office hours.

4. It is the obligation of a retail store to ensure that coupons are only redeemed against food or non-alcoholic beverages. The employee is under no obligation if the retail store is flouting the rules. All national chains like Big Bazaar, Spar, Hypercity, Reliance Fresh, More, Spencer's, etc., accept them only for food and non-alcoholic beverages.

5. To put on a public forum that two food coupon companies bribed the IT department is grossly misjudged. Do you have any proof? Because this can go against you.

6. Like conveyance, even Sodexo coupons are tax-free without having to submit any proofs. In fact, it is the only instrument that allows you to save some tax even if you have not made any investments, because this is a part of CTC.

7. Please get a life if you don't like Sodexo coupons. Lakhs of employees are benefiting from this.

8. If any outlet is overcharging for accepting Sodexo coupons, please bring it to Sodexo's notice. They shall immediately blacklist the outlet. It has zero tolerance towards this. Not a single extra penny has to be given over and above the bill value when paid by Sodexo coupons.

Cheers!!

Understanding Meal Allowance and Legal Interpretations

1. The law states Rs 50 per meal, not Rs 50 per day. It used to be Rs 35 per day until 2001, but this changed because one meal is insufficient for 10-12 hours of work. Does the law specify how many meals? If you work from 9-6 in a general shift and add travel time from home to office and back, you are away for almost 10-12 hours. One meal does not suffice; hence, companies provide two meals. If your company policy includes tea or snacks, you can still offer an additional Rs 25 or Rs 35 worth of coupons. In total, you can always provide Rs 100-150 per day. The law needs careful interpretation. Did you know that in the UK, even travel time from home to office and back has been added to working hours? A similar petition is in progress in India.

2. The law mentions working hours but does not specify or define them. Working hours should not be confused with office timings. Nowadays, we often take our laptops home and may engage with onsite clients even at midnight or prepare presentations on a Sunday for a Monday meeting. These activities constitute working hours. I emphasize the importance of interpreting the law correctly.

3. Even in grocery stores or hypermarkets, you can find ready-to-eat food. Additionally, many employees either have health issues or prefer not to eat out. They purchase grains and vegetables using coupons, prepare meals at home, bring them to the office, and consume them during the so-called working hours. In this context, how are they wrong? How can they be proven wrong?

Regards,
Rahul