TIBS Blog

We examined issues pertaining to taxation of food coupon/meal voucher in the previous post. Let us take a look at the business rules payroll managers need to consider while administering meal vouchers.

1. When to issue meal vouchers–beginning or end of the month?

Some organizations issue meal vouchers at the end of the month while others issue meal vouchers at the beginning of the month. We have come across a company which issues meal vouchers in advance for each quarter. You may choose to issue meal vouchers whenever you wish. However, in order to claim tax exemption, employees are supposed to use meal vouchers for consuming food during working hours. If an organization issues meal vouchers at the end of a month, it could be argued that the total amount of meal vouchers issued in that month shall be taxable in that month since there is no way the meal vouchers can be used by employees for consumption in that month. In such a case, tax exemption to the extent of Rs. 50 per meal, if applicable, can be claimed only in the next month.

2. Display in payslip.

Some organizations show the value of meal vouchers on both the pay and the deduction side of payslip while some do not. We are of the view that meal voucher–given that it is a non-cash perquisite–is to be kept out of the payslip. After all, we do not show the value of perquisites such as accommodation and car in the payslip.

3. Impact of loss of pay.

Whether or not the value of meal vouchers issued to employees gets impacted by loss of pay shall be determined by the business rules in your organization. But please note that the value of meal vouchers should be adjusted for loss of pay in order to calculate the perquisite value of meal vouchers for taxation.

4. Issuance of meal vouchers in the first and last months of service.

In the first and last months of an employee’s service, if the employee works less than full month, many organizations pay the corresponding value of meal vouchers by cash and tax it fully. This is because the amount payable to employee under the meal voucher head many not correspond to the meal voucher denominations available. For example, if an employee is entitled to get meal voucher to the extent of Rs. 2,000 per month and in the first/last month (a 30-day month) of service he works only for 7 days, then the value of meal vouchers to be issued to the employee for the first/last month shall be Rs. 467 after rounding off. Given that meal vouchers may not add up to Rs. 467 on account of the available denominations, you may consider paying it out as cash in the first/last month of service.

The alternative is to issue meal vouchers for the whole month, irrespective of when an employee joins or leaves the organization, and make a cash deduction in the payroll/final settlement to the extent the employee has not worked for the month.

If you decide to issue meal vouchers in advance each month, you will have to recover the cash value, if applicable, of meal vouchers  from an employee who leaves your organization before the end of month during the final settlement calculation.

5. Meal vouchers as a flexi-pay component.

Some organizations allow employees to switch between meal vouchers and cash as and when employees wish. While there is nothing wrong in giving the flexibility to employees, payroll managers need to take cognizance of the additional administrative effort in managing issuance of meal vouchers and keeping track of the pay structure changes when employees switch from meal vouchers to cash and vice versa.

6. Meal vouchers in case of arrear pay.

Your organization may decide to include meal vouchers when there is a pay hike with retrospective effect. You may issue additional meal vouchers towards “meal voucher arrear” in case of a retrospective hike. But please note that the tax exemption can be availed only to the extent of Rs. 50 per meal.