November 2008

Fringe Benefit Tax

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Introduction

What is FBT?

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Introduction

Rationale for FBT► The Finance Minister stated the following while introducing the FBT

legislation: “Therefore, by the presumptive tax method what we are trying to do is to tax

that part which is clearly a perquisite, clearly a benefit but which is going untaxed both in the hands of the employer and the employee…..”

► FBT levy is necessary to ensure that fringe benefit taxation does not violate horizontal and vertical equity.

► This levy would bring to tax benefits that are collectively enjoyed and are not capable of being attributed to an individual employee.

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Introduction

Synopsis of the provisions► FBT is an “additional” income-tax payable by an ‘employer’

► FBT is a tax payable with effect from 1 April 2005, on► Fringe Benefits, and► Deemed Fringe Benefits

► Fringe benefits are ‘deemed’ to have been provided to an employee in case an employer incurs specified expenditure

► Perquisites on which tax is paid or payable by an employee are excluded from the ambit of FBT

► FBT is leviable @ 30% (plus surcharge and education cess) on ‘value’ as prescribed

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Introduction

► Value prescribed is either 5%/20% / 50% / 100% of the total expenditure

Synopsis of the provisions► FBT is applicable to

► Company ► Firm ► AOP or BOI► Local authority► Artificial juridical persons

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Introduction

► FBT not applicable to ► An individual (whether or not books of accounts are audited)► A Hindu Undivided Family (whether or not books of accounts are audited)► A person whose income is eligible for exemption under section 10(23C) or

registered under section 12AA► Central and State Governments► A political party

► FBT is not a deductible business expenditure

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Fringe benefits defined

Means any consideration for employment provided by way of -

Nature of expenses / payments Fringe Benefit Value

Any privilege, service, facility, or amenity, directly or indirectly, provided by an employer, by way of reimbursement or otherwise, to his employees (including former employee or employees);

Not provided for specifically

Any free or concessional ticket provided by the employer for private journeys of his employees or their family members; and

Market price of the ticket (Less) Any amount recovered

Any contribution by the employer to an approved superannuation fund for employees

Actual amount of contribution in excess of Rs 100,000 per employee

Any specified securities or sweat equity shares allotted or transferred directly or indirectly to the employees free of cost or at concessional rate (including former employee or employees)

The fair market value (of the specified security or sweat equity shares) on the date on which the option vests (Less) Any amount recovered

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Deemed Fringe Benefits

Nature of expenditure Presumptive base

Entertainment 20%

Hospitality 20%

Conference 20%

Sales promotion and publicity (excluding advertisement) 20%

Employees’ welfare 20%

Conveyance 20%

Hotel, boarding and lodging facilities 20%

Repair, running, maintenance and depreciation of motor cars 20%

Repair, running, maintenance and depreciation of aircrafts 20%

Use of telephone (other than leased lines) 20%

Festival celebrations 20%

Use of health club and similar facilities 50%

Use of club facilities 50%

Gifts 50%

Scholarships 50%

Tour & travel (including foreign travel) 5%

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Exclusions from Deemed Fringe Benefits

Exclusions Expenditure head

F&B in office / factory / training centre Hospitality

Non-transferable food vouchers / pre-paid electronic meal card Hospitality

Fee for participation, In-house training Conference

Payments to meet statutory obligations / to mitigate occupational hazards Employees’ welfare

Expenditure to sponsor sportsperson employee, to organise sports event for employees, providing creche facility Employees’ welfare

Expenditure to provide first aid facilities / for injuries during work – provided at employer run hospital / dispensary Employees’ welfare

LTC, Reimbursement of consultant’s expenditure Conveyance

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