How HRs should structure food allowance in the new tax regime

Most employees scanning their salary slip have seen the food allowance line item sitting quietly between basic pay and HRA. Very few know what it actually does, or whether they are getting the full benefit from it.

According to Income Tax e-Filing portal data for FY 2024-25, approximately 8.57 crore individuals filed income tax returns in India that year. Of these, the largest group of filers falls in the Rs5 lakh to Rs10 lakh salary bracket, which is precisely the income range where a Rs1,05,600 annual tax-free food benefit makes the most meaningful difference to take-home pay.

Food allowance is one of the smallest components in a CTC structure but one of the most consistently underutilised tax-saving benefits available to salaried employees in India. For HR teams at startups and SMEs, it is one of the easiest ways to increase an employee's effective take-home without increasing the company's cost.

Food allowance meaning

Food allowance is a component of salary that an employer provides to cover an employee's daily meal expenses during working hours. It is a supplementary benefit, separate from basic salary, designed to recognise that employees incur food costs as part of their working day.

In its simplest form, food allowance acknowledges that an employee eating at work, whether at a canteen, a restaurant near the office, or ordering food while working from home or in the field, is spending money directly connected to their employment. The allowance is the employer's contribution toward that recurring expense.

Food allowance can be delivered in two primary formats.

• Cash allowance is a fixed amount credited to the employee's salary account every month as part of their pay. This is the simpler format to administer but carries a significant tax disadvantage. Cash food allowance is fully taxable as income. There is no exemption available regardless of whether the employee is on the old or new tax regime.
• Meal coupons or digital meal cards are pre-loaded instruments that employees use exclusively for food purchases at restaurants, canteens, food courts, or grocery stores. This format carries a meaningful tax exemption of Rs200 per meal under the Income Tax Act, subject to conditions. Platforms like the Pazcard meal allowance card allow employers to offer this benefit digitally, with easy onboarding, compliance tracking, and wide merchant acceptance.

What is food allowance in salary?

Food allowance appears in the CTC structure as part of the allowances category, sitting alongside HRA, transport allowance, and special allowance. In a typical Indian salary structure, it looks like this. Example CTC structure including food allowance.

In this structure, the food allowance of Rs8,800 per month is structured as a meal card benefit, meaning it is the maximum amount eligible for full tax exemption under current rules. The employee does not pay tax on this Rs1,05,600 per year, provided it is delivered through a non-cash mechanism.

Food allowance vs food reimbursement vs free office meals

These three terms are often used interchangeably, but they are meaningfully different, especially under the new tax regime in India, where most traditional exemptions no longer apply.

• Food allowance is a fixed monthly salary component paid to the employee, either as cash or via a meal card. Under the new tax regime, both formats are fully taxable, and there is no exemption available regardless of how the benefit is delivered.
• Food reimbursement is the process by which an employee spends money on food, submits bills, and is reimbursed by the employer. In most standard cases under the new regime, this is also treated as taxable income, unless it qualifies under very specific employer policies or exceptional cases. For most employees, it does not offer any tax advantage.
• Free office meals provided by the employer at a canteen or cafeteria are treated as a perquisite. However, under the new tax regime, the earlier Rs50 per meal exemption is not applicable, and the value of such meals may be considered taxable depending on how they are structured and reported.
• Food allowance is a fixed monthly salary component paid to the employee, either as cash, which is taxable, or via meal card, which is partially exempt.
• Food reimbursement is the process by which an employee spends money on food, submits bills, and is reimbursed by the employer. The tax treatment depends on the policy and whether it qualifies as a perquisite under Rule 3(7)(iii) of the Income Tax Rules.
• Free office meals provided by the employer at a canteen or cafeteria are treated as a perquisite. Under Rule 3(7)(iii), meals not exceeding Rs200 per meal provided during working hours are not taxable. Meals provided through the company canteen at subsidised rates are similarly treated.

Food allowance rules in India

Employers structuring food allowance in their CTC should be aware of the following rules and guidelines.

• Under the new tax regime in India, food allowance does not qualify for any tax exemption, regardless of how it is structured or delivered. The earlier rules around per-meal limits and exemptions are not applicable for employees opting for the new regime, which is now the default for most taxpayers.
• It must be provided for working days only. While companies may still structure food allowance based on working days (typically -22 days/month), this is now a policy or budgeting decision, not a tax-driven requirement. The earlier calculation of Rs8,800 per month (based on Rs200 per meal) may still be used as a benchmark, but it does not provide tax benefits under the new regime.
• Cash food allowance is fully taxable. This remains unchanged. Whether food allowance is paid as cash, reimbursement, or part of salary, it is treated as fully taxable income under the new tax regime.
• The meal card or voucher must be used exclusively for food. If an employer provides a digital meal card, it should only be usable at food outlets including restaurants, cafeterias, food courts, and grocery stores. It cannot be used for alcohol, tobacco, or non-food purchases. Platforms like Pazcard enforce merchant category restrictions automatically, ensuring compliance and controlled usage, even though tax exemption is no longer applicable.

The benefit can be structured for remote and field employees. There is no requirement for the employee to be physically present in an office. Remote workers, field agents, and work-from-home employees are all eligible for the food allowance benefit through digital meal cards, provided the card is used for eligible food purchases.

Food allowance tax exemption in India

Under the new tax regime, the tax treatment of food allowance is simplified but also less favourable from a tax-saving perspective. While earlier provisions like Section 10(14) of the Income Tax Act and Rule 3(7)(iii) of the Income Tax Rules enabled exemptions on meal benefits, these exemptions do not apply under the new regime. The practical outcome is straightforward:

• Cash food allowance is fully taxable: When an employer pays a fixed monthly food allowance as part of salary, the entire amount is added to the employee’s taxable income. There is no exemption available, and it is reflected as taxable salary in Form 16.
• Meal cards and food coupons are also taxable: Even if the employer provides food benefits through non-cash formats such as digital meal cards or coupons, the earlier exemption (up to ₹200 per meal) is not available under the new tax regime. The entire value of the benefit is treated as a taxable perquisite and included in the employee’s income.
• Free or subsidised office meals remain the only limited exception: Meals provided by the employer during working hours in an office canteen or through a vendor may still be treated as a non-taxable perquisite within prescribed limits, subject to conditions under Rule 3(7)(iii). However, this is a narrow exception and applies only to employer-provided meals, not allowances or reimbursements.

Under the new tax regime, food allowance, whether paid in cash or via meal benefits, does not offer tax savings and should be positioned as a convenience and employee experience benefit rather than a tax-efficient component of salary.

Food allowance exemption under Section 10

The food allowance exemption sits at the intersection of two provisions of the Income Tax Act, 1961.

• Section 10(14) covers special allowances granted to employees to meet expenses incurred in the performance of their duties. Food allowance, when structured as a non-cash benefit and used for meal expenses during working hours, qualifies under this section.
• Section 17(2)(viii) read with Rule 3(7)(iii) covers free food and non-alcoholic beverages provided by employers. Under Rule 3(7)(iii), free meals provided during working hours at the office or through paid vouchers that are non-transferable and usable only at eating joints are not treated as perquisites, provided the value does not exceed Rs200 per meal.
• Key condition: Section 10(14) and Rule 3(7)(iii) exemptions are available only when the benefit is provided in non-cash form. A cash food allowance, regardless of what it is labelled, is taxable in the hands of the employee. This distinction is non-negotiable and has been clarified consistently by the Income Tax Department.

Food allowance exemption limit

The food allowance exemption limit is ₹200 per meal under the Income Tax Act (applicable under the old tax regime). Here is how the calculation works in practice:

• Per meal exemption: ₹200
• Meals per working day considered: 2
• Working days per month: 22 (average for salaried employees)
• Monthly exemption limit: 22 × 2 × ₹200 = ₹8,800
• Annual exemption limit: ₹8,800 × 12 = ₹1,05,600

This means the maximum tax-free food benefit an employee can receive per year through a compliant meal card is ₹1,05,600 under the old tax regime. Any amount above this threshold becomes taxable as a perquisite. Under the new tax regime, however, this exemption does not apply, and the entire food allowance, whether provided as cash or via meal benefits, is treated as taxable income.

What happens if the employer loads more than the limit?

Under the new tax regime, the concept of an “exempt limit” for food allowance is no longer applicable. If an employer loads ₹3,000 per month onto a food card, the entire ₹3,000 is treated as taxable income, not just the excess. This means the full ₹36,000 per year is added to the employee’s taxable salary and reflected in Form 16.

There is no partial exemption, no threshold benefit, and no split between exempt and taxable components under the new regime.

Conditions for the tax exemption to apply

While tax exemptions are not available, employers should still follow structured guidelines to ensure proper usage and compliance:

• Non-transferable benefit: Meal cards or vouchers should be issued in the employee’s name and not transferable.
• Restricted usage: They should be usable only at food outlets such as restaurants, cafeterias, and grocery stores, not for non-food purchases.
• Employer-provided benefit: The benefit must be issued by the employer as part of the compensation structure, not independently purchased by the employee.
• Defined policy limits: Even without tax exemptions, companies often set internal caps (e.g., monthly limits) to standardise benefits across employees.

Under the new tax regime, loading a higher amount does not create a tax-efficient structure, it simply increases taxable income. The focus should shift from optimization to employee convenience and experience.

Food allowance in new tax regime

This is a critical point that many employees and HR teams miss, and it has direct implications for how CTC structures should be designed: food allowance exemption is not available under the new tax regime.

The new tax regime under Section 115BAC is now the default, and with recent budget changes making income up to ₹12 lakh effectively tax-free for many individuals, a large portion of salaried employees are either defaulting to or actively choosing this regime. For all of them, food allowance offers no tax advantage, regardless of how it is structured.

Food allowance vs Meal coupons

These terms are often used interchangeably, but they refer to different delivery mechanisms. Under the new tax regime, however, their tax treatment is the same.

• Food allowance typically refers to a cash component included in the salary structure. This is fully taxable and added directly to the employee’s income.
• Meal coupons and digital meal cards are non-cash instruments provided through a platform, loaded with a fixed amount, and restricted to food-related spends. Earlier, these offered tax benefits, but under the new regime, that advantage no longer exists.

Pros and cons for employees

Under the new tax regime, both cash food allowance and meal cards are fully taxable, so the decision is no longer about tax savings.

• Cash food allowance offers complete flexibility. The money is credited directly to the employee’s account and can be used without restrictions, making it the preferred option for most employees.
• Meal cards or coupons come with usage limitations (restricted to food-related merchants), which can feel inconvenient, especially for remote employees or those in smaller cities with limited acceptance. Their value now lies purely in spending discipline or convenience, not tax efficiency. 

Pros and cons for employers

• Cash allowance is straightforward to administer and integrates seamlessly into payroll. However, it does not create any additional perceived benefit beyond the salary amount itself.
• Meal cards require platform integration and vendor management, adding slight administrative complexity. Since there is no tax advantage under the new regime, their value shifts to being a lifestyle or experience-led benefit rather than a compensation optimiser.

Benefits of food allowance

For employees

Food allowance helps reduce daily out-of-pocket meal expenses by providing a dedicated employer-funded amount for food. While it is fully taxable, it still improves cash flow and spending comfort, especially for employees who regularly order in, eat out, or work long hours.

• Cash food allowance offers complete flexibility, employees can use the amount however they choose, making it the most practical option for many.
• Meal cards bring structure to spending, ensuring a portion of income is set aside specifically for food. This can be useful for employees who prefer disciplined budgeting or want a separate pool for daily meal expenses.

For employees who frequently spend on food delivery, office lunches, or travel meals, this benefit ensures that a part of their monthly expenses is covered by the employer, even if not tax-optimised.

For employers

Food allowance continues to be a high-visibility, low-complexity benefit that enhances the overall compensation experience.

• It improves perceived compensation by covering a real, recurring expense, something employees notice every day, unlike one-time bonuses.
• It signals that the organisation is investing in employee well-being and convenience, which positively impacts engagement and retention.
• It is easy to structure within CTC, simple to communicate, and can be administered seamlessly, whether as cash or through a benefits platform.

While meal cards no longer offer tax arbitrage, they can still be positioned as a lifestyle perk that supports structured spending and curated employee benefits.

How employers can structure food allowance

Under the new tax regime, food allowance no longer offers tax benefits, so the focus should shift from tax optimisation to flexibility, simplicity, and employee experience.

• Offer cash as the default option: Since both cash and meal cards are fully taxable, cash allowance is often the most practical choice. It gives employees complete flexibility in how they spend the amount and integrates seamlessly into payroll without additional setup.
• Use meal cards as a lifestyle perk, not a tax tool: Meal cards can still be offered, but their positioning needs to change. Instead of tax savings, highlight benefits like structured spending, ease of use for food expenses, and better budgeting discipline. This works well for organisations looking to create curated, non-cash benefits.
• Provide flexibility based on employee preference: A one-size-fits-all approach no longer works. Offer employees a choice between cash and meal benefits, allowing them to pick what suits their lifestyle. This improves satisfaction without increasing cost.
• Communicate the benefit clearly: Be transparent that food allowance is a fully taxable benefit under the new regime. Position it as a daily expense support or lifestyle perk, not a tax-saving component. Clear communication builds trust and avoids confusion during appraisals or offer rollouts.

For startups and small HR teams, platforms like Pazcard by Pazcare simplify the entire process. The platform handles card issuance, merchant category restrictions, balance management, and compliance tracking, so HR teams do not need to build internal processes from scratch. Employees get a digital meal card that works across a wide network of food outlets, and employers get visibility into utilisation.

Explore the Pazcard meal allowance solution, or book a call with Pazcare.