FBT- PREPAID ELECTRONIC MEAL CARDS- a burdensome exemption- can't we think of simple exemptions involving petty payments?

[C.A. Uma Kothari]

New provision inserted by the Finance Act, 2008:

The following new sub-clause was inserted by the Finance Act, 2008, w.e.f.  1-4-2009 in S. 115WB(2)(B) to exclude from value of fringe:

    "(iii) any expenditure on or payment through non-transferable prepaid electronic meal card usable only at eating joints or outlets and which fulfils such other conditions as may be prescribed."

This apply  from the assessment year 2009-10 covering previous year that begun on 01.04.2008. It was desirable that prescription of  conditions should have been fast and immediate. However, after lapsing of  more than 3/4^th of the previous year, now   on 5^th January  2009 ,a notification  no. 5 of 2009 has been issued to insert  a new Rule 40E in the I.T.Rules. The Rule (with highlights)  reads as follows:

"Prescribed conditions for the purposes of sub-clause (iii) of clause (B) of sub-section (2) of section 115WB.

40E. For the purposes of sub-clause (iii) of clause (B) of sub-section (2) of section 115WB, the non-transferable pre-paid electronic meal card (hereinafter called the "card") shall fulfill the following conditions, namely:-

(i) The card shall be granted by the employer to its employees under a scheme framed by the employer specifying therein the circumstances under which the meal card can be used by the employee.

(ii) The card under clause (i) shall be issued by the issuing bank.

(iii) An employee shall not be issued more than one card.

(iv) The card shall bear the name of the employer along with the name, photograph and signature of the employee to whom the card is issued.

(v) The card shall be used only by the employee to whom the card is issued.

(vi) The card shall be used by the employee only for the purpose of purchasing ready to eat food or non-alcoholic beverage from a member establishment.

(vii) The aggregate amount of ready to eat food or non-alcoholic beverage purchased during a day by an employee shall not exceed one hundred rupees

(viii) The details of each transaction of purchases made by the employee against the card shall be maintained by the employer and the member establishment in such manner and for such period as is required under the Act for any other similar transaction.

Explanation.- for the purposes of this rule,-

(i) "banking company" shall have the same meaning as assigned to in clause (viii) of subsection

(1) of section 36 of the Act;

(ii) "issuing bank" means a banking company-

(a) which issues the card to the employees of an employer in pursuance to an agreement entered into with the employer; and

(b) which has entered into a contract with the member establishment authorizing him to allow purchases against the card issued by it in accordance with the conditions stipulated in sub-clause (iii) of clause (B) of sub-section (2) of section 115WB and this rule; and

(iii) "member establishment" shall mean a restaurant, hotel, canteen or an outlet which sells ready to eat food or non-alcoholic beverage, but shall not include a restaurant, hotel, canteen or an outlet selling alcoholic beverage."

An analysis of salient features:

The card should be photo and signature  card:

The photo meal  card is to be issued by bank and it will act as a link  between the employer, employee, issuing bank and the member establishment for the  purposes of purchasing meals and recording of transactions. The employer shall have to formulate a scheme and enter into agreement with issuing bank which has entered into agreement with member establishment.

The card will be issued by issuing bank. The card will bear  photo  and signature of employee.

 And only one card can be issued to any employee.

Usages of  card:

As the card bear photo and signature both, the card can be used only by concerned employee. As per Rule also it  shall be used only by the employee to whom the card is issued and only for the purpose of purchasing ready to eat food or non-alcoholic beverage from a member establishment up to maximum of Rs. one hundred on nay day.

It appears that the limit of Rs. One hundred on any day  is very low, in view of high costs at such establishments. This  should be increased with  condition that purchase above certain amount per day or per month shall be liable to FBT. Otherwise situation may arise that one has to make part payment by his card and part payment by other means.

Member establishment:

A definite meaning is given  as "shall mean a restaurant, hotel, canteen or an outlet which sells ready to eat food or non-alcoholic beverage, but shall not include a restaurant, hotel, canteen or an outlet selling alcoholic beverage."

According to this meaning if in any establishment alcoholic beverage is sold, then such establishment cannot be a member establishment.

Cant we have simple scheme for  controlling petty matter:

A question that come to mind is cant we make exemptions and relief simple and practical.

Some daily meals at cost of employer at a cost not exceeding Rs. 100/- per day is a very nominal sum for  even  a factory worker in a good organization. For controlling such petty expenses ( per employee)  such a complex scheme has been framed and it will involve  employee, employer, bank and member establishment.  Is it not an evidence  showing bureaucratic approach of imposing too much  conditions for controlling petty things?

Simple exemption of  Rs. one hundred per day per employee- working day may be allowed for all such expenses whether incurred at factory canteen, through caterer, re-imbursement to employee or in any other manner.