Brief Introduction
Income tax on fringe benefits has been introduced in Finance Act, 2005 comprising of section 115W to 115WL.The objective of the act is to charge the employer on fringe benefits which is provided by him to the employees.
Definition of Fringe benefits: Fringe benefits comprises to two parts:
1. Direct Fringe benefits
2. Indirect Fringe benefits
Direct fringe benefits encompasses any consideration for employment provided by employer by way of any privilege,service,facility or amenity,directly or indirectly to his employees.However services, facility,privilege does not include perquisites on which tax has been paid by the employee.
Also with reference to AY 2007-08 any allowance, benefits, subsidy paid by employer to his employee for journey from his place of residence to place of office and vice-versa is exempt from levy of FBT.
Indirect fringe benefits consists of various parts which are explained later on in FAQ.
FREQUENTLY ASKED QUESTIONS ON FRINGE BENEFIT TAX WHICH ARE VERY IMPORTANT FOR CORPORATE BODIES :
1. What is the chargeability of fringe benefit tax ?
ANS . FBT is imposed @ 30% on the value of the fringe benefits provided
by the employer to the employee.The effective rate after surcharge and education cess comes out at 33.66%
(FBT 30 + SURCHARGE 10% ON IT = 33% + 2% EDUCATION CESS ON 33%=
33.66%)
2.What are the entities on which FBT is imposed?
ANS . Following are the entities on which FBT is imposed:
1 Company
2 Firm
3 Association of person and body of individuals
4 Local authority
5 Artificial juridical persons
2.What are the entities on which FBT is imposed?
ANS . Following are the entities on which FBT is imposed:
1 Company
2 Firm
3 Association of person and body of individuals
4 Local authority
5 Artificial juridical persons
3. What are the categories of employers on which FBT is not imposed ?
ANS. 1 Individual
2 Hindu undivided family
3 Person eligible for exemption u/s 10(23c) of income tax act
4 Political parties
4. If I am making losses this year,should I have to pay FBT ?
ANS . Yes, FBT is payable even though the employer is making losses and not paying his income tax under the provisions of income tax act.
5. What is the basis for charging FBT?
ANS. The basis for charging FBT is the employer-employee relationship. If
the company has no employees then it does not have to pay FBT.
6. I have closed down my business and I am in process of winding up, should I be liable to FBT?
ANS. Yes
7. I have incurred some expense on entertainment, should I have to pay FBT?
ANS. Yes. All expenditures incurred on entertainment, amusement, game, sport are liable to FBT.
8. I have incurred expenses on get together of my employees and their family members on non festival occasions, whether i am liable to FBT?
ANS. Yes
9. What is the value of entertainment expenses on which FBT is imposed?
ANS. FBT is imposed on 20% value of entertainment expenses.
10. What is the difference between direct and indirect fringe benefits?
ANS. In case of direct fringe benefits tax is imposed on 100% value of expenses and in the case of indirect expenses tax is imposed on value as prescribed by the act.
11. I provide for food and beverages to my employees in office, should I be liable for FBT?
ANS. No
12. I provide for food and beverages to my employees through paid vouchers, should i would be liable to FBT ?
ANS. No
13. I provide food and beverages to my employees for training and the training centre is owned by me?
ANS. No
14. I provide food and beverages to my employees for training and the training centre is hired by me?
ANS. Yes
15. If I reimburse to employees of expenditure incurred by them on food in the office premises while working after office hours ?
ANS. Yes
16. What is the value of hospitality expenses on which FBT is levied ?
ANS. Normally 20% value but in case of hotel,business of carriage of passenger and goods by aircraft,ship by 5%.
17. If I have made contribution to approved superannuation funds on behalf of employees, whether it would be liable to FBT ?
ANS. Contribution made per employee upto rs.100000 is not liable to FBT. If contribution made to approved superannuation fund per employee exceeds 100000 than such excess amount is liable to fringe benefit tax. FBT is imposed on 100% value of contribution.
18. If i attend any conference of trade bodies or institutions or any agency and incurred some expenditure then would it be liable for FBT ?
ANS. Yes
19.If I have incurred any expenditure by the way of fees for participation of my employee in any conference would it be liable for FBT ?
ANS. No, but fees should not include other expenditures.
20. What is the value of conference expenses on which FBT is levied ?
ANS. FBT is imposed on 20% value of conference expenses.
21. If I had paid brokerage and selling commission to selling agents, whether it is liable to FBT ?
ANS. No, since they are in the nature of ordinary selling expenses.
22. If I provide sales discount or rebates to wholeseller or customer whether it is liable to FBT ?
ANS. No, since they are in the nature of ordinary selling expenses.
23.if i provide incentives to distributors for meeting quantity targets ?
ANS. No,since they are in the nature of ordinary selling expenses.
24.if i incurred expenditure on product market research is it liable to FBT ?
ANS. No, if it is undertaken through seperate agency,but if research is carried out by employees
than it is liable to FBT.
25. If I incurred expenditure on call centre charge or poat-sales activity is it liable to FBT ?
ANS. No,since they are in the nature of ordinary selling expenses.
26.if i incurred expenditure on distribution of product samples is it liable to FBT ?
ANS. Yes, it is liable to FBT.
27. If I incurred expenditure on hotel stay, air ticket charges in relation to customers . Is it liable to FBT ?
ANS. Yes it is liable to FBT.
28. What is the value of sales promotion expenses on which FBT is levied ?
ANS. FBT is imposed on 20% value of sales promotion expenses.
29. If I incurred expenditure on group personal accident/workmen compensation insurance. Is it liable to FBT ?
ANS. No, if it is a statutory obligation or else yes.
30. If I incurred expenditure on group health insurance/group medical insurance/group life insurance is it liable to FBT ?
ANS. No, if it is a statutory obligation or else yes.
31. If I incurred expenditure for injuries sustained by employee in a hospital not maintained by me. Is it liable to FBT ?
ANS. Yes it is liable to FBT, but in case of statutory obligation no.
32. If I incurred expenditure on subsidy provided to school not meant for employees children Is it liable to FBT ?
ANS. Yes, since it's purpose is employee welfare.
33.If I incurred expenditure is for the maintenance of garden,site cleaning,light decoration, library, mess. Is it liable to FBT ?
ANS.Yes, since its purpose is employee welfare.
34. If I incurred expenditure for safety purposes like shoes, uniform etc. Is it liable to FBT ?
ANS. No, to the extent it is incurred under statutory provisions.
35.If I reimburse expenditure on books and periodicals to employees. Is it liable to FBT?
ANS. Yes, since it's purpose is employee welfare.
36. If I incurred expenditure on prizes,rewards etc . Is it liable to FBT ?
ANS. Yes
38.What is the value of employees expenses on which FBT is levied ?
ANS. FBT is imposed on 20% value of employee welfare expenses.
39. If I incurred expenditure on travelling for executing an assignment for my client and the expenditure is later on reimbursed by the client is it liable to FBT ?
ANS. Yes, the company is liable to pay and not the client.
40.If I am a professional like a lawyer,chartered accountant and I have incurred expenditure on tours,travel which is reimbursed by the client is it liable to FBT?
ANS. No, since the reimbursement is a essential part of fees paid by client to the lawyer.
41.If I paid rent for an operating lease of a car is it liable to FBT ?
ANS. Yes
42.What is the value of conveyance expenses on which FBT is levied ?
ANS. FBT is imposed on 20% value of conveyance expenses if it is local conveyance and 5% in case of outstation tours and foreign travel.
43.If I incur expenditure on hotel stay in relation to clients. Is it liable to FBT ?
ANS. Yes
44. If I incurred expenditure on hotel stay in relation to clients and later on it is reimbursed
by the clients is it liable to FBT ?
ANS. Yes
45.If I gave allowance to my employees for lodging and boarding. Is it liable to FBT?
ANS. Yes, but the employee is not liable to pay income tax on surplus
amount after incurring expenditure.
46. What is the value of hotel,boarding expenses on which FBT is levied ?
ANS. FBT is imposed on 20% value of hotel,boarding expenses, but in case
of pharmaceutical and software companies it is imposed on 5% value.
47. If I incurred expenditure on financial lease of a car . Is it liable to FBT ?
ANS. Yes
48. If I charge depreciation on a car. Is it liable to FBT ?
ANS. Yes
49. If I paid interest on loan taken for purchase of a car. Is it liable to FBT?
ANS. Yes
50. If I paid salary to the driver of a car . Is it liable to FBT?
ANS. Yes
51. If I paid rent for garages or parking slots?
ANS. Yes
52. If I incurred expenditure on repair,running and maintenance of display van , trucks, ambulances. Is it liable to FBT ?
ANS. No, since the vehicles does not come under category of "motor car".
53. What is the value of repair expenses incur on car on which FBT is levied ?
ANS. FBT is imposed on 20% value of repair expenses,but in case of employer engaged in business of carriage of passengers by or goods by aircrafts the value is nil.
54.If I charge depreciation on a aircraft. Is it liable to FBT ?
ANS. Yes
55. If I paid salary to the pilot of an aircraft. Is it liable to FBT?
ANS. Yes
56. If I incurred expenditure on hangar charges for aircraft is it liable to FBT ?
ANS. Yes
57. What is the value of repair expenses incur on aircraft on which FBT is levied ?
ANS. FBT is imposed on 20% value of repair expenses.
58. If I incurred expenditure on installation of telephone and payment of telephone bills . Is it liable to FBT ?
ANS. Yes
59. What is the value of telephone expenses on which FBT is levied ?
ANS. FBT is imposed on 20% value of telephone expenses.
60. If I incurred expenditure on installation of refrigerators, televisions, furniture in a guest house is it liable to FBT ?
ANS. No, since it amounts to acquisition of capital assets.
61. If I paid rent on guest house ?
ANS. Yes
62. If I incurred expenditure on maintainence of guest house like food,contract charges paid to staff is it liable to FBT ?
ANS. Yes
63. If I charge depreciation on guest house is it liable to FBT ?
ANS. No
64. What is the value of maintainence charges incurred on guest house on which FBT is levied ?
ANS. FBT is imposed on 20% value of guest house expenses.
65. If I incurred expenditure on get together of employees on occasion of Diwali, Id , New Year, etc. Is it liable to FBT ?
ANS. Yes
66. If I incurred expenditure on get together of employees on occasion of Independence Day, Republic Day . Is it liable to FBT ?
ANS. No, since they are not festivals.
67. If I incurred expenditure on get together of employees on occasion of non festival occasions (annual day). Is it liable to FBT ?
ANS. Yes, but under head of "entertainment" or "employees welfare".
68. What is the value of festival celebrations expenses on which FBT is evied ?
ANS.FBT is imposed on 50% value of festival celebrations expenses.
69. If I incurred expenditure on membership fees of health club on behalf of employees. Is it liable to FBT ?
ANS. Yes
70. If I charge depreciation on club building. Is it liable to FBT ?
ANS. No
71. What is the value of club facility expenses on which FBT is levied ?
ANS. FBT is imposed on 50% value of club facility expenses.
72. If I incurred expenditure on giving gifts to my distributors for promotion of company products . Is it liable to FBT ?
ANS. Yes
73. If I incurred expenditure on giving gifts to my customers. Is it liable to FBT ?
ANS. Yes
74. If I incurred expenditure on giving gifts to my employees on occasion
of marriage . Is it liable to FBT ?
ANS. Yes
75. If I incurred expenditure on giving gifts in kind. Is it liable to FBT?
ANS. Yes
76. What is the value of gift expenses on which FBT is levied ?
ANS. FBT is imposed on 50% value of gift expenses.
77. If I incurred expenditure on giving education to employees by sending them to educational institutions . Is it liable to FBT ?
ANS. Yes
78. If I incurred expenditure on giving scholarships to students and trainees . Is it liable to FBT ?
ANS. Yes
79. What is the value of scholarship expenses on which FBT is levied ?
ANS. FBT is imposed on 50% value of scholarship expenses.
80. By which date, return of fringe benefits is to be filed ?
ANS. In case of company or employer other then company the relevant date is 31 oct and in other cases it is 31th July.
81. When is the advance tax is respect of fringe benefit paid ?
ANS. The amount of advance tax payable in the financial year shall be 30% of the value of fringe benefits paid or payable in each quarter. The advance tax is to be paid on or before 15 march following the quarter, however in case of last quarter(31 march) the advance tax is to be paid by the assesses, on or before 15 march of the said financial year.
82.What is the interest to be paid in case assessee fail to pay advance tax by due date ?
ANS. The assessee is laible to pay simple interest @1 % on the shortfall for every month or part of the month for which the shortfall continues.
83. By what time, a claim for refund of fringe benefits is to be made ?
ANS. According to section 239 the claim for refund of fringe benefits is to be made within the period of one year from the end of the last day of the assessment year for which such fringe benefits are assessable.
84.When an assessee conceals or give false information about fringe benefits,then what are the penal provisions ?
ANS.according to a section 271 the assessee shall be chargeable with a penalty of 100% to 300% of tax evaded or sought to be evaded.
85.What are the penal provisions if the assessee willfully fails to furnish fringe benefits return ?
ANS. According to the section 276 CCC the assessee shall be imprisoned for a period of 3 to 7 years with or without fine.
86. What are the penal provisions if a person compels another person to make a false statement ?
ANS. According to section 278, if a person compels another person to make a false statement,then the former person shall be imprisoned for a period from 6 months to
3 years with or without fine.
87.What are the provisions regarding leave travel concessions?
ANS. If leave travel concession are included in salary and subject to exemption u/s10(5) then they are not laible to FBT,however if they are not included in salary
then they are laible to FBT under the head "conveyance".
84. When an assessee conceals or give false information about fringe benefits,then what are the penal provisions ?
ANS.according to a section 271, the assessee shall be chargeable with a penalty of 100% to 300% of tax evaded or sought to be evaded.
85.What are the penal provisions if the assessee willfully fails to furnish fringe benefits return ?
ANS. According to the section 276 CCC , the assessee shall be imprisoned for a period of 3 to 7 years with or without fine.
86. What are the penal provisions if a person compels another person to make a false statement ?
ANS. According to section 278, if a person compels another person to make a false statement,then the former person shall be imprisoned for a period from 6 months to 3 years with or without fine.
87. What are the provisions regarding leave travel concessions?
ANS. If Leave Travel Concession are included in salary and subject to exemption u/s10(5) then they are not liable to FBT, however if they are not included in salary then they are liable to FBT under the head "conveyance".
88. What are the provisions regarding medical reimbursement?
ANS. If any sum is paid by the employer to employee towards treatment of employee in unapproved hospital and that sum exceeds 15000 then it amounts to salary and therefore liable to income tax hence not chargeable to FBT,but if sum does not exceeds 15000 then it is chargeable to fringe benefit tax.
89.Is segregation of expenses permissible ?
ANS. No
90. Are pre-operative expenses liable to FBT ?
ANS. If the expenses are incurred for the purpose specified in the categories then they are liable to FBT even if they are pre-operative expenses.
91. Whether FBT is chargeable on advance payments towards expenses to be incurred in future ?
ANS.FBT is payable in the year in which expenses is to be incurred.therefore no FBT is payable on advance payments towards expenses to be incurred in future.
92. Is FBT chargeable on capital expenditure ?
ANS. No
93. If a person a incurs expenses of rs.1 lac on person b and get back rs.20000 from him,then FBT is chargeable on which amount ?
ANS. In the above case FBT is chargeable on rs.80000 and not on rs.100000.
94. Is FBT applicable on foreign companies ?
ANS. Yes, only if they have employees in India
In case of any other questions , Pl. contact me
Dinesh Pandey
Tax Consultant (Nagpur)
completetaxguide@gmail.com
