New income tax slab: Rules changed, no exemption on meal vouchers & coupons

For those opting for the new income tax slab which offers a lower tax rate, the income tax department has changed rules for claiming exemption on free meals provided by the employer.

In a notification, the income tax department has said that employees opting for the new tax slab under Section 115BAC will not enjoy the benefit of tax exemption on meal coupons or vouchers.

"Under the new tax regime effective FY 2020-21, an employee can no longer claim an exemption for meal coupons given by way of paid vouchers. The exemption value is ₹50 per meal," Archit Gupta, Founder and CEO, ClearTax, said.

The income tax department considers free meal or beverages provided by an employer to employees during office hours to be a personal benefit to employees and not an expenditure for official purposes, explained tax expert Shailesh Kumar, Partner, Nangia & Co LLP. "Therefore, similar to other allowances withdrawn under new slab, tax exemption on such free meals or beverages has been withdrawn under the new scheme," he said.

According to ClearTax's analysis, the following exemptions are, however, available to all employees:

1) The cost of free food and non-alcoholic beverages given by an employer during working hours at the office or business premises.

2) Tea and snacks provided during working hours.

3) Free food and non-alcoholic beverages provided during working hours for work in a remote area or an offshore installation.

In a recent notification the Central Board of Direct Taxes (CBDT) had amended rules relating to exemption for salaried employees opting for the new tax regime which was introduced by Finance Minister Nirmala Sitharaman in her last Budget. The amendment to Rule 3, dealing with perquisites valuation, states that “the exemption provided in the first proviso in respect of free food and nonalcoholic beverage provided by such employer through paid voucher shall not apply to an employee, being an assessee, who has exercised option under sub-section (5) of section 115BAC."

The amended rules applies from assessment year 2021-22.

This notification also apparently clarifies that except free meals/ beverages/ meal coupons, tax treatment of other perquisites specified under Rule 3, such as rent free accommodation, motor cars, free/ concessional education facility, telephone, concessional loan, gifts, club membership, etc. provided by employer will remain the same, both under old scheme as well as under new scheme, Kumar said.