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Hi Pali,
This topic was discussed last year when it was introduced and subsequently there has been a series of amendments on account of discussions between the Govt. & Industry. Am sharing the update and hope it helps all as a ready reckoner on this subject.
Cheers,
Rajat
What is FBT ?.
The taxation of perquisites -- or fringe benefits -- provided by an employer to his employees, in addition to the cash salary or wages paid, is fringe benefit tax.
Any benefits -- or perks -- that employees (current or past) get as a result of their employment are to be taxed, but in this case in the hands of the employer.
This includes employee compensation other than the wages, tips, health insurance, life insurance and pension plans.
Fringe benefits as outlined in section 115WB of the Finance Bill, mean any privilege, service, facility or amenity directly or indirectly provided by an employer to his employees (including former employees) by reason of their employment.
They also include reimbursements, 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 will be taxed?
As per the Finance Bill, fringe benefits shall be deemed to have been provided if the employer has incurred any expense or made any payment for the purposes of:
(a) entertainment;
(b) festival celebrations;
(c) gifts;
(d) use of club facilities;
(e) provision of hospitality of every kind to any person whether by way of food and beverage or in any other manner, excluding food or beverages provided to the employees in the office or factory;
(f) maintenance of guest house;
(g) conference;
(h) employee welfare;
(i) use of health club, sports and similar facilities;
(j) sales promotion, including publicity;
(k) conveyance, tour and travel, including foreign travel expenses;
(l) hotel boarding and lodging;
(m) repair, running and maintenance of motor cars;
(n) repair, running and maintenance of aircraft;
(o) consumption of fuel other than industrial fuel;
(p) use of telephone;
(q) scholarship to the children of the employees.
In cases where the employer is engaged in the business of carriage of passengers or goods by motor car or by aircraft, a lower percentage of expenses on repair, running and maintenance of motor cars or aircrafts or fuel expenses has been specified.
Similarly, for hotels, a lower percentage of the expenses incurred on hospitality has been specified for purposes of calculating the liability under the fringe benefit tax.
An employer liable to pay fringe benefit tax is required to furnish a return of fringe benefits before the due date as given in section 115WD.
Who pays fringe benefit tax?
Under the proposed provisions, fringe benefit tax is payable by an employer who is either an individual or a Hindu undivided family engaged in a business or profession; a company; a firm; an association of persons or a body of individuals; a local authority; a sole trader, or an artificial juridical person.
The tax is payable in respect of the value of fringe benefits provided or deemed to have been provided by an employer to his employees during the previous year.
The value of fringe benefits so calculated, is subject to additional income tax in respect of fringe benefits at the rate of thirty per cent, as provided in section 115WA.
The fringe benefit tax is payable by the employer even where he is not liable to pay income-tax on his total income computed in accordance with the other provisions of this Act.
The benefit does not have to be provided by the employer directly for him to attract fringe benefit tax. fringe benefit tax may still be applied if the benefit is provided by a third party or an associate of the employer or by under an arrangement with the employer.
Why fringe benefit tax?
The taxation of perquisites -- or fringe benefits -- provided by an employer to his employees, in addition to the cash salary or wages paid, is subject to varying treatment in different countries.
These benefits are either taxed in the hands of the employees themselves or the value of such benefits is subject to a 'fringe benefit tax' in the hands of the employer.
The rationale for levying a fringe benefit tax on the employer lies in the inherent difficulty in isolating the 'personal element' where there is collective enjoyment of such benefits and attributing the same directly to the employee.
This is so especially where the expenditure incurred by the employer is ostensibly for purposes of the business but includes, in partial measure, a benefit of a personal nature.
Moreover, in cases where the employer directly reimburses the employee for expenses incurred, it becomes difficult to effectively capture the true extent of the perquisite provided because of the problem of cash flow in the hands of the employer.
Therefore, the finance minister has proposed to adopt a two-pronged approach for the taxation of fringe benefits under the Income-tax Act.
Perquisites which can be directly attributed to the employees will continue to be taxed in their hands in accordance with the existing provisions of section 17(2) of the Income-tax Act and subject to the method of valuation outlined in rule 3 of the Income-tax Rules.
In cases, where attribution of the personal benefit poses problems, or for some reasons, it is not feasible to tax the benefits in the hands of the employee, it is proposed to levy a separate tax known as the fringe benefit tax on the employer on the value of such benefits provided or deemed to have been provided to the employees.
For this purpose, a new Chapter XII-H is proposed to be inserted in the Income-tax Act containing sections 115W to 115WL, which provides for the levy of additional income tax on fringe benefits.
The chapter is divided into three parts. Part A contains the meaning of certain expressions used, part B enumerates the basis of charge, and part C delineates the procedures for filing of return in respect of fringe benefits, assessment and the payment of tax thereon.
Will phone bills invite fringe benefit tax?
Yes. For telephone expenses, the finance minister assumes that 10 per cent of all calls made from an office is by employees for personal reasons, while for fuel, the extent of use by employees has been taken at 20 per cent.
However, there is some talk that the fringe benefit tax on telephone expenses may be 'reworked'.
How will the fringe benefit tax be calculated?
The value of fringe benefits shall be the aggregate cost incurred. That is, the total expense deducted will be considered for purposes of levying fringe benefit tax. From this, a certain percentage will be deducted. The difference therein will be taxed at the rate of 30%.
However, the fringe benefit tax rate varies from 10 per cent to 50 per cent depending upon the expense incurred: For example, for the use of telephones 10 per cent fringe benefit tax will be charged, while entertainment expenses, festival expenses, gifts, use of club facilities, etc will be taxed at the rate of 50 per cent.
Which other countries levy fringe benefit tax?
Although fringe benefit tax may seem new to India, it's not a novel concept. This tax is already levied in the United States, the United Kingdom, Canada, Australia, New Zealand, Japan and some other nations.
The fringe benefit tax rules proposed in the Budget by the finance minister are modelled on the Australian system. With the only difference that fringe benefit tax is proposed to be taxed at between 10 per cent and 50 per cent in India, whereas in Australia it is taxed at a flat rate of 60%.
In Australia, when you invite your client to a meal what you spend on your own lunch will attract fringe benefit tax, and not what you spend on your client's lunch, which is marked as business expense.
A meal in an in-house canteen or ordered in office is, however, exempted from tax. But reimbursements for a party at home is not.
From India, Pune
This topic was discussed last year when it was introduced and subsequently there has been a series of amendments on account of discussions between the Govt. & Industry. Am sharing the update and hope it helps all as a ready reckoner on this subject.
Cheers,
Rajat
What is FBT ?.
The taxation of perquisites -- or fringe benefits -- provided by an employer to his employees, in addition to the cash salary or wages paid, is fringe benefit tax.
Any benefits -- or perks -- that employees (current or past) get as a result of their employment are to be taxed, but in this case in the hands of the employer.
This includes employee compensation other than the wages, tips, health insurance, life insurance and pension plans.
Fringe benefits as outlined in section 115WB of the Finance Bill, mean any privilege, service, facility or amenity directly or indirectly provided by an employer to his employees (including former employees) by reason of their employment.
They also include reimbursements, 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 will be taxed?
As per the Finance Bill, fringe benefits shall be deemed to have been provided if the employer has incurred any expense or made any payment for the purposes of:
(a) entertainment;
(b) festival celebrations;
(c) gifts;
(d) use of club facilities;
(e) provision of hospitality of every kind to any person whether by way of food and beverage or in any other manner, excluding food or beverages provided to the employees in the office or factory;
(f) maintenance of guest house;
(g) conference;
(h) employee welfare;
(i) use of health club, sports and similar facilities;
(j) sales promotion, including publicity;
(k) conveyance, tour and travel, including foreign travel expenses;
(l) hotel boarding and lodging;
(m) repair, running and maintenance of motor cars;
(n) repair, running and maintenance of aircraft;
(o) consumption of fuel other than industrial fuel;
(p) use of telephone;
(q) scholarship to the children of the employees.
In cases where the employer is engaged in the business of carriage of passengers or goods by motor car or by aircraft, a lower percentage of expenses on repair, running and maintenance of motor cars or aircrafts or fuel expenses has been specified.
Similarly, for hotels, a lower percentage of the expenses incurred on hospitality has been specified for purposes of calculating the liability under the fringe benefit tax.
An employer liable to pay fringe benefit tax is required to furnish a return of fringe benefits before the due date as given in section 115WD.
Who pays fringe benefit tax?
Under the proposed provisions, fringe benefit tax is payable by an employer who is either an individual or a Hindu undivided family engaged in a business or profession; a company; a firm; an association of persons or a body of individuals; a local authority; a sole trader, or an artificial juridical person.
The tax is payable in respect of the value of fringe benefits provided or deemed to have been provided by an employer to his employees during the previous year.
The value of fringe benefits so calculated, is subject to additional income tax in respect of fringe benefits at the rate of thirty per cent, as provided in section 115WA.
The fringe benefit tax is payable by the employer even where he is not liable to pay income-tax on his total income computed in accordance with the other provisions of this Act.
The benefit does not have to be provided by the employer directly for him to attract fringe benefit tax. fringe benefit tax may still be applied if the benefit is provided by a third party or an associate of the employer or by under an arrangement with the employer.
Why fringe benefit tax?
The taxation of perquisites -- or fringe benefits -- provided by an employer to his employees, in addition to the cash salary or wages paid, is subject to varying treatment in different countries.
These benefits are either taxed in the hands of the employees themselves or the value of such benefits is subject to a 'fringe benefit tax' in the hands of the employer.
The rationale for levying a fringe benefit tax on the employer lies in the inherent difficulty in isolating the 'personal element' where there is collective enjoyment of such benefits and attributing the same directly to the employee.
This is so especially where the expenditure incurred by the employer is ostensibly for purposes of the business but includes, in partial measure, a benefit of a personal nature.
Moreover, in cases where the employer directly reimburses the employee for expenses incurred, it becomes difficult to effectively capture the true extent of the perquisite provided because of the problem of cash flow in the hands of the employer.
Therefore, the finance minister has proposed to adopt a two-pronged approach for the taxation of fringe benefits under the Income-tax Act.
Perquisites which can be directly attributed to the employees will continue to be taxed in their hands in accordance with the existing provisions of section 17(2) of the Income-tax Act and subject to the method of valuation outlined in rule 3 of the Income-tax Rules.
In cases, where attribution of the personal benefit poses problems, or for some reasons, it is not feasible to tax the benefits in the hands of the employee, it is proposed to levy a separate tax known as the fringe benefit tax on the employer on the value of such benefits provided or deemed to have been provided to the employees.
For this purpose, a new Chapter XII-H is proposed to be inserted in the Income-tax Act containing sections 115W to 115WL, which provides for the levy of additional income tax on fringe benefits.
The chapter is divided into three parts. Part A contains the meaning of certain expressions used, part B enumerates the basis of charge, and part C delineates the procedures for filing of return in respect of fringe benefits, assessment and the payment of tax thereon.
Will phone bills invite fringe benefit tax?
Yes. For telephone expenses, the finance minister assumes that 10 per cent of all calls made from an office is by employees for personal reasons, while for fuel, the extent of use by employees has been taken at 20 per cent.
However, there is some talk that the fringe benefit tax on telephone expenses may be 'reworked'.
How will the fringe benefit tax be calculated?
The value of fringe benefits shall be the aggregate cost incurred. That is, the total expense deducted will be considered for purposes of levying fringe benefit tax. From this, a certain percentage will be deducted. The difference therein will be taxed at the rate of 30%.
However, the fringe benefit tax rate varies from 10 per cent to 50 per cent depending upon the expense incurred: For example, for the use of telephones 10 per cent fringe benefit tax will be charged, while entertainment expenses, festival expenses, gifts, use of club facilities, etc will be taxed at the rate of 50 per cent.
Which other countries levy fringe benefit tax?
Although fringe benefit tax may seem new to India, it's not a novel concept. This tax is already levied in the United States, the United Kingdom, Canada, Australia, New Zealand, Japan and some other nations.
The fringe benefit tax rules proposed in the Budget by the finance minister are modelled on the Australian system. With the only difference that fringe benefit tax is proposed to be taxed at between 10 per cent and 50 per cent in India, whereas in Australia it is taxed at a flat rate of 60%.
In Australia, when you invite your client to a meal what you spend on your own lunch will attract fringe benefit tax, and not what you spend on your client's lunch, which is marked as business expense.
A meal in an in-house canteen or ordered in office is, however, exempted from tax. But reimbursements for a party at home is not.
From India, Pune
Hi Pali,
Here in Canada it could be several things but most commonly fringe benefit tax.
The acronym is also used for
1. freight broker training
2. food and biotechnology training
3.Biblical, theological and pastoral training
My sense is that it probably stands for the taxing issue based on this forum.
Cheers,
Jo
From Canada, Ottawa
Here in Canada it could be several things but most commonly fringe benefit tax.
The acronym is also used for
1. freight broker training
2. food and biotechnology training
3.Biblical, theological and pastoral training
My sense is that it probably stands for the taxing issue based on this forum.
Cheers,
Jo
From Canada, Ottawa
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