On the basis of analysis of 115W to 1I5WL and the circular No. 8/2005, issued by CBDT, the following are the important features of ‘Fringe Benefits Tax’
1. Applicable with effect From. The FBT is applicable with effects from pervious year 2005- 06, i.e., Assessment year 2006-07. In other words, the fringe benefits provided or deemed to have been provided by employer to employees on or after 1-4-05 are chargeable to FBT.
2. Chargeable to specified Employer. FBT is chargeable on specified employer as defined under section 11 5W(a). The term ‘Employer’ includes—
(i) a company;
(ii) a firm;
(iii) an association of persons or BOl, whether incorporated or not;
(iv) a local authority; and
(v) every artificial juridical persons, not falling within any of the preceeding sub-clauses.
The above employers are liable to FBT if they are engaged in business or profession or any activity, whether or not such activity is carried on with the object of deriving income, profits or gains.
It implies that individual employers (Sole proprietors) and Hindu undivided family employers are not liable to pay FBT.
The above mentioned employers are liable to pay FBT if
(i) the Fringe Benefits are provided to employees and
(ii) the employees are based in India.
The employees may be full time or part time, permanent or temporary. However, where a business house provides fringe benefits to persons other than employees, it is not liable to FBT. For example where Fringe benefits are provided to professionals like consultants, advisors, lawyers, who are not the employees but work in independent professional capacity, the employer is not liable to pay FBT.
Note. FBT will be applicable on foreign companies if they have employees based in India.
3. Chargeable on specified fringe benefits. Section 1 15WB(1)
defines the fringe benefits to mean any privilege, service, facility or amenity, directly or indirectly, provided by an employer, whether by way of reimbursement or otherwise to his employees (including former employees). It will also include any free or concessional ticket provided by the employer for private journey of the employees or their family members; and any contribution by the employer to an approved superannuation fund of employees.
Further, Section 1 15WB(2) has prescribed a list of expenses, which if incurred by employer shall be treated as fringe benefits to employee.
4. Valuation of Fringe benefits.
Some of the fringe benefits are to be valued at cost to employer i.e., the actual amount spent by the employer on empldyees shall be treated as the value of fringe benefits provided. However, in respect of certain expenses, where the benefit is not directly attributable to employees a specified percentage of actual expenditure shall be treated as the value of fringe benefits provided to employees. For example 20% of actual expenditure incurred on entertainment by an employer, shall be treated as value of fringe benefits provided to employees.
5. Rate of FBT.
FBT is chargeable at the rate of 30% on value of fringe benefits provided during the previous year.
6. FBI is a presumptive Tax.
It is a persumptive tax because in respect of certain expenses incurred by employer, a certain proportion is presumed to have been incurred on employees as a fringe benefits to them. The acutal expenditure on fringe benefits may be more or less than the value of fringe benefits calculated on the presumptive basis.
7. FBT is not an allowed business expense.
FBT paid is not allowed as deduction for the purpose of computing the income under ‘Profits and Gains of Business or Profession’.
8. FBT and MAT.
FBT paid is an allowable deduction while computing ‘book profits’ u/s
115JB under MAT.
9. FBT in addition to Income Tax.
FBT is an addition to income tax payable by the employer.
10. Return of Fringe Benefits.
The employers covered under FBT are liable to file a return of ‘fringe benefits’ provided to employees during the previous year. This return has to be submitted within due dates as prescribed under section 139(1) of Income Tax Act, 1961.