The Finance Act, 2005 (clause 37) has introduced a new tax called ‘Fringe Benefits Tax’ (FBT) by inserting new sections 115W to I15WL in the Income Tax Act, 1961. This Tax has been levied on specified employers with effect from previous year 2005-06, i.e., Assessment year 2006-07. It is levied on perquisites or fringe benefits provided by an employer to his employee, in addition to the cash salary or wages paid. The ‘fringe benefit tax’ is already prevalent in the United States, the United Kingdom, Canada, Australia, New Zealand, Japan and some other countries.
As we know that employer often provides many facilities/benefits to employees in addition to cash salary and allowances. The cost incurred by employer on providing these benefits to employees is also an allowed expense while calculating business income of the employer. Under Income Tax Act, 1961 these benefits/facilities are known as Perquisites and are taxable in the hands of employees as per the provisions of section 17(2). For the purpose of taxability as income in the hands of employees, these perquisites are valued as per rule 3 of the Income Tax Rules, 1962. On analysing section 17(2), we can find the following three categories of perquisities
(i) Perquisities exempted for all employees.
(ii) Perquisities taxable for all employees.
(iii). Perquisities taxable only in case of specified employees.