Come the end of the financial year, and your thoughts turn to tax savings. Historically, and only sometimes with reason, employees have held the view that their employers turn a blind eye to available means to legally lessen the tax burden for the salaried worker, thus enhancing take-home pay. But that is changing, with new-age Internet companies using technology and their financial skills to help employers reduce the burden and effort involved in offering tax savings measures for employees.
According to the income tax (I-T) department, there are about 26 various allowances ranging from conveyance allowance, transport allowance, uniform allowance, medical to entertainment or food expenses provided by the employer that are exempted from tax.
Figures from the department tell us that the average salary of a tax-paying salaried Indian stands at about 500,000 per annum and an estimated ten lakh of the four crore salaried professionals in the country benefit from such tax-saving schemes.
However, deterrents that stand in the way of employers rolling out these schemes include tedious paper work, tight and stringent regulatory frameworks involved in filing claims and processing reimbursements for both employers and employees.
To help companies overcome these hurdles, new-age entrepreneurs are adopting technology to increase cash flows to the wallets of the salaried segment in the country. The financial technology (FinTech) firms that offer a digital path to employee benefit schemes include Bengaluru-based start-ups Zeta, NiYO and Udio, among others. These companies claim that they can increase the take-home salary by up to 10 per cent even as they provide regulatory compliance and customised solutions to corporates.
An estimate suggests that an up to 10 per cent increase in take-home for every salaried person would mean an additional disposable income of approximately Rs. 25,000 crore for the economy - means more spending, saving or investing. The addressable opportunity for FinTech companies is close to the 30 million salaried employees in India who are eligible for these tax benefits.
‘No rise in CTC’
Zeta, founded by Bhavin Turakhia, entered the employee tax benefit and rewards space early this year. The company promises its clients that it can help increase employee take-home salaries without increasing the total cost to company.
Currently, it offers eight benefits through its digital solution such as fuel & travel, communications, books and periodicals, meal vouchers, medical reimbursements, gadget cards and gift cards. Meanwhile, NiYo offers benefits such as meal allowance, gift allowance, reimbursements for medicine, mobile, and fuel bills.
As per guidelines, an employee can get meal vouchers up to a value of 24,000, medical reimbursement up to 15,000, 5000 as gift vouchers and up to 50,000 as gadgets and assets allowance based on the salary, of which 30 per cent of the amount can be tax exempted in each element.
“Zeta's cloud-based solution enables companies to send grants to employees instantly through a digital dashboard. A corporate can easily roll out our solutions through which a salaried person can increase their take-home salary by Rs.80,000 per annum,” said Zeta Co-founder and Ramki Gaddipati said.
For example, one of the non-taxable benefits given to employees is the food voucher. Most organisations provide tax-saving food coupons in paper format, such as Sodexo passes that can be used at various eateries and stores.
According to law, food in the office premises or through non-transferable paid vouchers usable only at eating joints provided by an employer is not taxable, if the cost to the employer is 50 per meal.
At present, employees need to distribute coupon in booklet form printed in different denominations. While using them, employees need to check for a denomination which could be cumbersome. Similarly, for the employer, there is a lot of paperwork and logistics involved, incurring additional effort or cost.
“Providing employees maximum benefits is the aim of all corporates. However, with corporate having employees across the country it is very difficult to manage stuff in a paper and pen model as it may cause misses or loss of bills. Using these products helps us very much,” said Anita Tiwari- GM- Rewards and Mobility, Telenor.
Guidelines a catalyst
The recent policy guidelines on Issuance and Operation of Pre-paid Payment issued by the Reserve Bank of India is a major boost that could fuel the growth digital means of employee benefit payments.
Pre-paid payment instruments facilitate the purchase of goods and services, including funds transfer, against the value stored in such instruments. There are three categories here: closed, semi-closed and open system payment instruments.
As per RBI guidelines, all semi-closed payment instruments can be used only in electronic format. As these cards are treated as prepaid instruments, start-ups have partnered with banks to provide co-branded solutions to the customers.
“All persons authorised/approved to issue pre-paid payment instruments are permitted to co-brand such instruments with the name or logos of financial institutions,” stated a circular issued by the RBI in July this year.
This move by the RBI has prompted many new-generation lenders such as RBL Bank and YES Bank to join hands with these companies. Zeta has partnered with RBL to offer MasterCard powered Zeta Super Card while NiYo has partnered with YES Bank to provide YES BANKNiYO Benefits Cards.
“The partnership with a start-up in this segment helps us to create more value for our customers,” said Ritesh Pai, Senior President & Country Head, Digital Banking, YES Bank. “We are now able to bundle (these solutions) as part of our corporate offerings to our customers. We were lacking such a piece in our solutions and it is a strategy for high-level engagement with corporates,” Mr. Pai said.
How it works
Digital platforms provide a mobile application, a wallet and a digital card which is pre-loaded with either employee payroll or benefits, reimbursements, incentives or any other category of spend for which he or she is eligible. These cards can be used at all Visa, MasterCard & Rupay merchants and can be used online or at the point of sales. The money stored in wallets can be used for paying autorickshaw fares, too where possible.
Another advantage of these apps is that they have the capability to attach copies of bills through the mobile and also allow for digital storage of bills and receipts on the cloud. Apps like NiYo and Zeta can be used to track spend of the employees.
The mobile app allows employees to review all card transactions as well as check balances in real-time. At the back-end, the NiYO app seamlessly integrates with existing HR management systems of companies helping them track all benefits and claim reimbursements without resorting to paper.
“The new tax and employee benefit apps help us to provide more benefits in a convenient manner,” said Ishrat Sharqi- HR Geo Partner, India & SAARC, Autodesk.
Betting big
NiYo, launched in July 2016 as a pilot in Bangalore, has bagged more than 10,000 end-user customers, while Zeta also has seen a sizeable growth in numbers of active users with more than 70,000 people in its fold.
Fintech, currently a hot destination for investors, is likely to get more funding with such the emergence of more start-ups to help solve long-pending problems of the salaried class in India. A report from analyst firm Tracxn that tracks start-up funding said that in the year 2016, 86 fintech companies had received funding worth $484 million in 97 rounds.
Mr. Turakhia is planning to invest $25 million in FY 2018 to strengthen Zeta, while Prime Venture Partners had invested $1 million in NiYO Solutions. Transerv, which offers Udio wallets, had also raised $15 million in Series C funding led by IDFC Spice Fund, Micromax Informatics and other investors.
Cashless likely driver
Apart from all these factors, the recent drive towards digitising payments on the back of the government’s recent demonetisation exercise is is likely to drive the use of cards and wallets. Also, with the increased penetration of the PoS and digital format payments in smaller places the use of such benefit cards will witness growth.
With cashless transactions gaining momentum, the security of transactions would be a matter of concern and there could be more security breaches. Security consultants said that fintech firms must take adequate steps to curb this. Security features such as geo-tagging and a PIN for authenticating payments, e-KYC verification based on Aadhaar and the Unified Payments Interface launched by the National Payments Corporation of India, could further drive large-volume, secure transactions.
