Fringe Benefit Tax (FBT)

STRUCTURE

7.1. Introduction
7.2. Salient Features Of FBT
7.3. Important Points Relating To Fringe Benefit Tax
7.4. Characteristics Of FBT
7.5. Classification Of Employer For FBT
7.6. Classification Of Not Employer For FBT
7.7. Direct Fringe Benefit
7.8. Deemed Fringe Benefit
7.9. Payment Of FBT To The Government
7.10. Filing Of FBT Return

Fringe Benefit Tax (FBT) was introduced as part of Finance Act, 2005 as an additional income-tax and came into force from April 1, 2005. The term Fringe Benefits means ‘any consideration for employment provided by way of any privilege, service, facility or amenity provided by the employer to the employees’.

Fringe Benefit Tax is to be levied on the employer in respect of fringe benefits provided/deemed to be provided by the employer to his employees during any financial year commencing on or after 1.4.2005
Fringe Benefit Tax is payable at the rate of 30% of the value of fringe benefits computed in the manner prescribed under the Section 115WC.

Some of the features of FBT are listed as follows:

• Fringe Benefit Tax payable by an employer is in respect of perquisites or fringe benefits provided or deemed to have been provided by the employer to his employees in addition to the cash salary or wages paid during the year.

• Fringe Benefit Tax is levied in addition to the Income-Tax charged.

• Fringe Benefit Tax is payable at the specified rate on the value of fringe benefits provided to the employees.  The value of fringe benefits is calculated in accordance with the provisions of Section 115WC of the Income-Tax Act, 1961.

• An employer has to pay Fringe Benefit Tax even if no Income-Tax is payable on the total income.

• Like any other direct tax, Fringe Benefit Tax is not an allowable expenditure for the purpose of computation of taxable income.

Some of the important points to be observed in FBT:

• Rate is calculated on Net Expenses.

• Expenses are not to be segregated between ‘Paid to Employees’ and ‘Paid to Outsiders’.

• Depreciation is calculated on the basis of Income Tax.

• FBT is applicable on Service Tax paid on any of the expenditure chargeable to FBT.

• Payment of FBT in case employers have employees based both in and outside India.

• Medical reimbursement upto Rs. 15,000 per employee is charged to FBT.

• Applicability of FBT in case an employer is engaged in two or more business activities.

• Different rates of tax on the Fringe Benefits provided by different industries.

• FBT is not payable on Advance paid.

• Tax Rate is 30% + Surcharge @10% + Education Cess @ 2%.

• One Ledger may have expenditure relating to different groups under FBT.

Some of the characteristics of FBT are:

• It is a tax on expenditure, not income.

• It is a tax on employer, not employees.

• It is a surrogate tax on employers.

• It cannot be recovered from the employees.

• It is to tax benefits that are usually enjoyed collectively by the employees and cannot be attributed to individual employees.

• A combination of presumptive and non-presumptive approaches has been adopted.

Under FBT, an Employer is defined as any of the following:

• Company

• Firm

• Association of Persons or a Body of Individuals (except Fund or Trust or institution eligible for exemption under section 10(23C) or registered under section 12AA)

• Local Authority

• Every Artificial judicial person, not falling within any of the above

Note: Under FBT, they are considered as Employer even if the Taxable Income is NIL.

The following are not included as Employer under FBT:

• An Individual (i.e., Proprietorship concern)

• Hindu Undivided Family

• Association of Persons or a Body of Individuals exempt under section 10(23C) or registered under section 12AA

• Central Government

• State Government

Direct Fringe Benefit as classified under section 115(WB) (1) means:

• Any privilege, service, facility or amenity, which is directly or indirectly provided by an employer to his employees (including former employee or employees).

• Any free or concessional tickets provided by the employer for private journeys to employees or their family members.

• Any contribution by the employer towards an approved superannuation fund for employees.

• Any reimbursement, which is directly or indirectly made by the employer to employees for any purpose.

The Fringe Benefits are deemed to have been provided if the employer incurs any expenditure or makes any payment in the course of business or profession. This includes any activity whether or not such activity is carried on with the object of deriving income, profits or gains. Any expenditure incurred or payment made for the following constitutes deemed fringe benefit.

• Entertainment
• Hospitality
• Conference
• Sales promotion including publicity
• Employee welfare
• Conveyance, tours and travel
• Hotel, boarding, lodging
• Repair, running and maintenance of cars
• Repair, running and maintenance of aircraft
• Use of telephone
• Maintenance of any accommodation in the nature of guest house
• Festival celebrations
• Health Club
• Any other club
• Gifts
• Scholarship to employees’ children
• Consumption of fuel other than industrial fuel

In accordance with the provisions, the FBT should be paid in advance during any financial year and the regular assessment of fringe benefits is to be made in a later assessment year.  

Advance Fringe Benefit Tax

Every assessee who is liable to pay advance tax has to pay tax on the current fringe benefits calculated in the manner laid down.

The amount of advance tax payable in the financial year is 30% of the value of the fringe benefits paid or payable in each quarter. This is payable on or before the 15th day of the month following each quarter except for the quarter ending 31st of March.

For the quarter ending on the 31st of March of the financial year, the amount of advance tax (on an estimated value) is to be paid on or before the 15th of March for the financial year.

If tax is not paid or the tax paid is less than the prescribed rate, the assessee is liable to pay simple interest at the rate of 1% on the amount by which the advance tax paid falls short.

An employer who has paid or made provision for payment of fringe benefits to his employees during the previous year is required to furnish a return of fringe benefits in the prescribed form and manner to the Assessing Officer before the due date.

For a company as an employer the due date is the 31st of October of the assessment year.

For a person who is an employer but not a company and whose accounts are required to be audited, the due date is the 31st of October of the assessment year.

For any other employer, the due date for filing the return of fringe benefits is the 31st of July of the assessment year.
After the due date, the Assessing Officer may issue a notice to the assessee requiring him to furnish a return in the prescribed form and manner within a period of thirty days.

Failure to furnish a return of fringe benefits or delayed filing of such return will result in the levy of interest at the rate of 1% for each month of delay or till the assessment is made on the amount of tax on the value of fringe benefits.