Fringe Benefit Tax (FBT)

What is fringe benefit tax & its exemptions?



Fringe Benefit Tax (FBT) is fundamentally a tax that an employer has to pay in lieu of the benefits that are given to his/her employees. It was an attempt to comprehensively levy tax on those benefits, which evaded the taxman. The list of benefits encompassed a wide range of privileges, services, facilities or amenities which were directly or indirectly given by an employer to current or former employees, be it something simple like telephone reimbursements, free or concession tickets or even contributions by the employer to a superannuation fund.

FBT was introduced as a part of the Finance Bill of 2005 and was set at 30% of the cost of the benefits given by the company, apart from the surcharge and education cess that also needed to be paid. This tax needed to be paid by the employer in addition to the income tax, irrespective of whether the company had an income-tax liability or not.

What are the exemptions?


Certain exemptions were also clearly laid out with regard to what came under the realm of fringe benefits. For instance, expenditure on food and beverages which an employer gave to his employees, fee paid for the participation of employees in conferences or any expenditure that the company incurred in the process of fulfilling mandatory obligations, laid down by the government, towards employees was left out of this scheme.

What are the changes that have come about in the recent years?

The Budget presented by the finance minister in July 2009, scrapped the FBT, giving sizeable relief to employers. However, companies are now waiting for a finance ministry notification on the abolition of the FBT and clarity on what exactly will be the mode of taxing perquisites.

If the government’s notification does not give a helping hand to the taxpayers, the entire list of perquisites could be added to the taxable income. This may include value of accommodation; leave travel concession (LTC), encashment of unveiled earned leave, medical reimbursement and so on. However, experts feel this could also mean a subsequent increase in the in-hand salary that will be given to employees.