How does Sodexo make money?

Sodexo charges 2% commission to employers when they book Sodexo coupons for their employees. When you go and purchase your grocery from lets say Big Bazaar from these Sodexo coupons.

No a big No! Sodexo doesn’t rely mainly on people to be ignorant and not use their Sodexo before the expiry date or to pay more than the thing is actually worth for PROFIT!

When a company books Sodexo coupons for their staff, Sodexo takes a 2% commission. Use these Sodexo coupons when you shop for groceries at, say, Big Bazaar. When Big Bazaar redeems these Sodexo vouchers, Sodexo also takes 2% out of their transaction.

So Sodexo earns a lot of profit through this conversion of Sodexo coupons to INR and vice versa. This is very similar to Banks earning through their POS swipe machines, they charge 1.8% as transaction fees.

Why would people go for Sodexo coupons instead of hard cash money or credit card – is a totally different story for tax saving purpose. You can read below details on how does it provides tax saving to employees.

There are different kind of Sodexo coupons available. But mainly Sodexo Meal Pass coupons are given by employer to its employees monthly for tax saving purpose.

The value of the coupons varies from employer to employer. It is observed that many of such employers as well as their employees are under the impression that sodexo coupons are fully exempt and are not taxable as perquisites irrespective of the amount. This is not correct interpretation of law.

Rule (3)(7)(iii) dealing with such perquisites is reproduced here under for discussion.

‘The value of free food and non-alcoholic beverages provided by the employer to an employee shall be the amount of expenditure incurred by such employer. The amount so determined shall be reduced by the amount, if any, paid or recovered from the employee for such benefit or amenity:

Provided that nothing contained in this clause shall apply to free food and non-alcoholic beverages provided by such employer during working hours at office or business premises or through paid vouchers which are not transferable and usable only at eating joints, to the extent the value thereof in either case does not exceed fifty rupees per meal or to tea or snacks provided during working hours or to free food and non-alcoholic beverages during working hours provided in a remote area or an off-shore installation.’

As mentioned in the rule, the valuation of this perquisite is done taking the gross cost to the employer as reduced by an amount collected from the employee in this regards, i.e. at the net cost to employer. This perquisite is tax free only to the extent of Rs. 50 (max) per meal during the working hours. It is very important to understand that one has to consider the working hours of the organization to calculate the tax-free amount of this perquisite.

Hence : 2 meals a day = 2*50 = 100 / day *30 days = 3,000 INR / month

Sodexo coupons are totally tax free to employees.

This provides a huge tax benefit to employees – let’s say an employee is in 30% tax bracket (CTC is higher than 10 lacs). Then every month one could save 900 INR / month in Income Tax (for taking 3000 Sodexo). This can be thought as 12*900 = 10,800 INR tax saving / year.