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Fringe Benefits Tax
made by the employer either directly or
indirectly to the employees for any
purpose, contributions by the employer
to an approved superannuation fund as
well as any free or concessional tickets
provided by the employer for private
journeys undertaken by the employees
or their family members.
What are these fringe benefits that
o what is the Fringe Benefit
will be taxed?
Tax and what has been its
As per the finance bill, fringe benefits
initial impact especially on
shall be deemed to have been provided
companies? The fringe
if the employer has incurred any expense
benefit tax or FBT, as it is
or made any payment for any of the
commonly referred to, proposes to tax
companies on the fringe benefits
The Fringe Benefit Tax provided to its employees in addition to Entertainment
imposed by the finance cash salary or wages paid. Any benefits
minister in his latest budget Festival Celebrations
or perks that employees (current or past)
in February 2005 was seen to get as a result of their employment are Gifts
be the biggest nightmare in to be taxed but in this case in the hands
Use of club facilities
the history of Indian taxation of the employer. Fringe benefits thus
by many tax experts. The Provision of hospitality of every
would include any compensation other
introduction of this tax was kind to any person whether by way
than wages, tips, health insurance, life
seen to be quite harmful for of food and beverages or in any
insurance and pension plans.
the system, coming from P other manner, excluding food or
Section 115 WB outlines the various
Chidambaram who is beverages provided to the
benefits to be classified as fringe
considered to be one of the employees in the office or factory.
benefits and includes any privilege,
greatest tax reformers.
Amount spent on the maintenance
service, facility or amenity directly or
Discretion, confusion and of a guest house
indirectly provided by an employer to his
frustration were expected employees (including former employees) Amount spent on conferences
with no limit to the questions by reason of their employment. Fringe
one could raise about it. Amount spent on employee welfare
benefits also include reimbursements,
44 Advanc'edge MBA September 2005
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running and profits before tax. FBT so far also
maintenance of accounts for just 6% of tax payable
motorcars, for the quarter ended June 2005. Of
aircraft or fuel the above 42 companies, only 7 are
expenses has shelling out an FBT of more than Rs 1
been specified. crore. For just 4 out of the 42
Also for hotels, a companies, FBT has worked out to be
lower percentage more than 5% of profit before tax.
of expenses The initial phase suggests that there
incurred on are no industry specific trends for
Use of health club, sports and
hospitality has been specified for FBT. For instance, TCS with a profit
purposes of calculating the liability under of Rs 578 crore has provided for Rs 9
Amount spent on sales promotion FBT. crore towards FBT. In contrast, Tata
Infotech, with a profit of Rs 23 crore,
Who pays fringe benefit tax?
Conveyance, tour and travel has set aside as much as Rs 1 crore.
The proposal for FBT specifies that
including foreign travel expenses Service companies like TCS, Infosys,
an employer who is an individual or a
Satyam, Wipro, HDFC Bank and Jet
Hindu Undivided Family (HUF) engaged
Hotel boarding and lodging
Airways have topped the list of FBT
in a business or profession, a company,
Repairs, running and maintenance
a firm, any association of persons or
of motor cars
body of individuals, a local authority, a
One of the reasons why FBT has
Repairs, running and maintenance sole trader, or an artificial juridical
failed to sting companies is a change
of aircraft person is liable to pay this tax.
in the compensation policy. For
Consumption of fuel other than Initial reports suggested that the instance, till March 2005, Infosys
industrial fuel fringe benefits tax would likely result in Technologies made monthly
India Inc incurring an additional contributions under the
Use of telephone
expenditure of about Rs 25,000 crore. superannuation plan to a trust. From
Scholarships awarded to children of With the June quarter results out for the new fiscal onwards, a substantial
employees. almost a majority number of companies, portion of the monthly contributions
it is now somewhat clear of how exactly
Where the employer is engaged in the is being paid directly to employees.
it is affecting corporate India.
business of carriage of passengers or Only a nominal amount is being
goods by motorcar or by aircraft, a lower contributed to the trust. Infosys in
The June quarter results suggest
percentage of expenses on repair, turn has kept its FBT outgo on the
that FBT has not
lower side though employees would be
turned out to be such
paying higher taxes now.
Unfortunately, a large number of
phenomenon as was
companies have opted at not
being made out to be
disclosing the provision of FBT.
initially. For the 42
companies that have Prominent companies that have not
so far made a provision disclosed provision made for FBT
for FBT, it has cropped include ACC, Bajaj Auto, Hero Honda
off a mere 1.1% of the Motors and Reliance Energy.
46 Advanc'edge MBA September 2005