Taxability of meal coupon under New Tax Regime

Query:

- Whether meal coupon provided by an employer is taxable in the hands of

employee who opts for New Tax Regime u/s 115 BAC of the Act
- If No, what is liability of employer to deduct the tax at source u/s 192 of the
Act.

Section A: Relevant provision of the Act

1. As per Section 115BAC of the Act,

(2) For the purposes of sub-section (1A), the total income of the person referred to therein,
shall be computed—
(i) without any exemption or deduction under the provisions of clause (5) or
clause (13A) or prescribed under clause (14)(other than those as may be prescribed for
this purpose) or clause (17) or clause (32), of section 10 or section 10AA or clause (ii) or
clause (iii) of section 16 or clause (b) of section 24 [in respect of the property referred to in
sub-section (2) of section 23] or clause (iia) of sub-section (1) of section 32 or section
32AD or section 33AB or section 33ABA or sub-clause (ii) or sub-clause (iia) or sub-
clause (iii) of sub-section (1) or sub-section (2AA) of section 35 or section 35AD or section
35CCC or under any of the provisions of Chapter VI-A other than the provisions of sub-
section (2) of section 80CCD or sub-section (2) of section 80CCH or section 80JJAA;]
(ii) ……….
(iii) ……….
(iv) ……….

2. Section 2(45) of the Act defines Total Income as below:

“total income" means the total amount of income referred to in section 5, computed in
the manner laid down in this Act

3. In exercise of the powers conferred by clauses (i) of sub-section (2) of section 115BAC
(as mentioned point1) read with section 295 the Income-tax Act, 1961, the Central Board of
Direct Taxes made a Rule to amend the Income-tax Rules, 1962 and accordingly issued
Notification no. 43/2023, Dated: June 21, 2023

4. The relevant extract of said notification is reproduced as below:

in rule 3, in sub-rule (7), in clause (iii), for the second proviso, the following proviso shall be
substituted, namely: -
Taxability of meal coupon under New Tax Regime

"Provided further that the provisions of the first proviso in respect of free food and non-
alcoholic beverage provided by the employer through paid voucher shall not apply to an
employee, being an assessee, who has exercised an option under sub-section (5) of
section 115BAC or whose income is chargeable to tax under sub-section (1A) of section
115BAC.";

Section B: Interpretation of the provisions

5. Exemption/Deduction vs Perquisite:

Rule 3 prescribes the valuation of perquisites and does not prescribe anything concerning
the exemption or deduction of allowances.
It is important to note for the purpose of Section 115BAC exemptions are provided under
Sections 10, 10AA etc. and deductions under Sections 16, 23, 32, 32AD, 33AB, 33ABA, 35,
80JJAA, etc.
Rule 3, which is governed by Section 17, deals with the valuation of perquisites for
computation purposes and is not concerned with exemptions or deductions. Section
115BAC, on the other hand, specifically addresses the withdrawal of exemptions or
deductions. The exemption or deduction comes into play
when there is an income which is otherwise taxable. Any rule
withdrawing the exemption or deduction of perquisites, in the absence of a specific
reference in the computation provision, is non-existent.

Therefore, it is clear that Section 115BAC aims to alter the total income by withdrawing
exemptions or deductions, rather than setting di erent rules for the valuation of
perquisites under di erent tax regimes.

6. Empowerment of the CBDT under Section 115BAC

Section 115BAC of the Income Tax Act empowers the Central Board of Direct Taxes (CBDT)
to specify exemptions under Section 10(14)(i) that are excluded from the computation of
total income for individuals opting for the New Tax Regime. Section 10(14)(i) refers to any
special allowance or benefit provided by an employer to the employee. However, it
specifically excludes allowances or benefits that are classified as perquisites under
Section 17(2). In essence, while special allowances or benefits are eligible for exemption
under Section 10(14)(i), the term perquisite, as defined in Section 17, is explicitly excluded
from such exemptions.
Taxability of meal coupon under New Tax Regime

7. Perquisites under Section 17(2)(viii) and Rule 3(7)(iii)

Section 17(2)(viii) of the Income Tax Act, when read in conjunction with Rule 3(7)(iii),
categorically includes the provision of food and non-alcoholic beverages as perquisites.
According to the provisions of Rule 3(7)(iii), if such food or beverages are provided in the form
of a paid voucher, and the value of each voucher does not exceed fifty rupees per meal, the
income value of that voucher is treated as Nil for tax purposes. Therefore, while food and
beverages are classified as perquisites, their value is excluded from taxation if the voucher
provided by the employer is within the specified value limit.

8. It is also critical to note that Section 10(14)(i) specifically excludes perquisites as

defined under Section 17 from its purview. This means that the provision of food or
beverages by an employer, even if it is done in the form of a voucher, would not fall under the
exemptions mentioned in Section 10(14)(i) because food and beverages are considered
perquisites under Section 17.

9. CBDT’s Rule-Making Power under Section 10(14)(i)

The Central Board of Direct Taxes (CBDT) is authorized to frame rules under Section 10(14)(i)
of the Income Tax Act for the purpose of determining exemptions that are not available to
individuals who opt for the new tax regime. However, this rule-making power is strictly
limited to exemptions under Section 10(14)(i) and does not extend to perquisites, which
are governed by Section 17 of the Income Tax Act.

Section C: Employer’s liability to deduct tax on Salary.

10. Budget Memorandum 2020 and Rule Amendments: It is important to highlight that in
the Budget Memorandum of 2020, the exemption for food vouchers was removed. In
response, Rule 3 of the Income-tax Rules was amended in 2020. However, the amendment
made to Rule 3 in 2020 was completely replaced by a new amendment in 2023 (as
discussed in point 3 above). Therefore, the amendment to Rule 3 introduced in 2020 is no
longer valid and does not apply in law.

11. Circular on calculation of Salary (Cir No. 24/2022 Dated December 7, 2022):
CBDT, through this circular, while explaining perquisite related provisions outlined the rules
for specifying a statement that provides particulars to be mentioned of perquisites, In the
circular, with respect to the valuation of free food or non-alcoholic beverages provided to
employees, reference is made to Notification No.38/20020 G.S.R. 415(E) dated June 26,
2020. According to this notification, for an employee who opts for the concessional taxation
Taxability of meal coupon under New Tax Regime

regime under section 115BAC of the Act, the exemption for free food and non-alcoholic
beverages provided by the employer through paid vouchers will not be available.

Vide Notification no. G.S.R. 415(E) dated 26.06.2020, the said rule has been amended so
as to provide that in case of an employee opting for concessional taxation regime under
section 115BAC of the Act, the exemption provided in respect of free food and
nonalcoholic beverages provided by employer through paid voucher shall not be available

12. From above it is clear that the circular specifying calculation of taxable salary relies on
an amendment made as per Notification No. 38/2020 and this particular amendment has
since been superseded by Notification No. 43/2023, dated June 21, 2023. Hence, the
TDS circular on salary relies on taxation rules which do not exist
in the eyes of law.

13. Impact on the TDS Salary Circular: Given that the amendment to Rule 3 made in
2020 has been entirely replaced by the 2023 amendment, it is evident that the circular
relating to TDS on salary has relied on a provision (Rule 3) that is no longer valid.

Section D: Conclusion

14. Conclusion

In conclusion, while the CBDT has the power to frame rules concerning exemptions under
Section 10(14)(i), it does not have the authority to create rules regarding perquisites under
Section 17. Rule 3’s role is limited to providing a framework for the valuation of perquisites
and not for determining whether a perquisite is taxable or exempt. Thus, Rule 3 is ultra vires,
as it goes beyond the powers of the rule-making authority, in line with the well-established
principle that rules cannot override the parent legislation.

15. In a nutshell,
- the amendment in Rule 3 with respect to taxability meal coupon for individual who opt for
NTR is ultra virus hence not taxable in hands of employee.
- Not only, the perquisite itself is not taxable but also the circular which cast responsibility
on employer to deduct the Tax u/s 192 replies on amendment in Rule 3 which does not
exist in eyes of law. Hence, employer do not assume any responsibility to deduct the tax
Taxability of meal coupon under New Tax Regime

Disclaimer: -

The views expressed herein above are for educational purpose. No assurance is given
that the revenue authorities/courts will concur with the views expressed herein. My
views are based on the existing provisions of law and its interpretation, which are
subject to change from time to time. I do not assume responsibility to update the
views consequent to such changes.

Above opinion is confidential and is expressed to you on the basis that it is not to be
copied, referred to or disclosed, in whole or in part, without our prior my written
consent. Accordingly, I accept no responsibility or liability to any party for any reliance
placed on the content’s views expressed hereinabove.

CA Nikhil Bhansali