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T. Banusekar

WHO are liable to Fringe Benefit Tax (FBT) ?

Reply

An employer listed in Section 115W is liable. The term employer is defined in Section 115W to mean a company, a firm, an AOP or BOI, whether incorporated or not but excluding a fund or institution eligible for exemption under Section 10(23C) or registered under Section 12AA, a local authority and every artificial juridical person not covered above. From this definition of the term `employer', it is clear that a company which is registered under Section 25 of the Companies Act, 1956, would be chargeable to FBT though its income may be exempt from income tax by virtue of being registered under Section 12AA of the Income Tax Act, 1961. Even loss-making companies and firms would be liable to FBT.

Query

In case of free or concessional tickets provided to employees or their family members, will all assessees be liable to FBT?

Reply

Section 115WC provides that the value of FBT in such a case will be the cost of such tickets provided by the employer to the general public as reduced by the amount recovered from the employee or employees.

This will mean that the fringe benefits can only be valued where such tickets are provided to an employee or to employees by an undertaking engaged in the business of transportation for other persons.

Query

In respect of expenses by way of hospitality, Section 115WB(2) refers to hospitality of every kind by the employer to any person. Does this mean that hospitality provided to outsiders will also be charged FBT?

Reply

As already explained FBT will be payable in respect of the expenses covered by Section 115WB(2), only where the expense is wholly or partly relatable to employees. If the expense is wholly related to a person other than an employee, FBT will not be charged. The mere use of the words `any person' will not bring expenses wholly incurred on an outsider within the ambit of FBT.

Query

Where expenditure is incurred on the travel, boarding or lodging of a person who is an employee and where the expenditure is wholly official in nature, that is in a case where the travel has been undertaken for the purpose of the employer's business, will it attract FBT?

Reply

There is no exclusion in respect of expenditure incurred wholly for official purposes. Even in such cases, FBT will be attracted.

Query

Does running and maintenance expenses of a car also include drivers salary?

Reply

The salary paid to a driver will be taxable as the salary income of such driver. This expense, which is taxable, as salary in the driver's hands cannot be taken as the running and maintenance expense of the car and will, therefore, not be subjected to FBT.

Query

In case of car taken on lease, will the lease rental be treated as part of the running and maintenance expense of the car?

Reply

If the car is essentially purchased under a financing scheme, which is in the form of a lease, the lease rentals will signify the payment of the principal and interest and will, therefore, not be part of running and maintenance of the car. However, if hire charges are paid for taking a car on hire or rent, the same will be part of the running and maintenance cost and will therefore be subjected to FBT.

Query

Will items, which are exempt in the hand of employees, such as a transport allowance of up to Rs 800 per month, be subjected to FBT?

Reply

Items of expenditure, which fall under the classification of salary, will not be subjected to FBT. Only items that do not fall under the classification of salary but result in benefits to employees within the meaning of Section 115WB will attract FBT. Exempt allowances will be outside the purview of FBT and will also be eligible for exemption in the hands of the employees.

Query

Will items such as reimbursement of medical expenses upto Rs 15,000 per annum or mediclaim insurance premium of employees which are not treated as a perquisite be subjected to FBT?

Reply

Items such as the above will not be subjected to FBT since these are specifically identifiable to an employee. FBT is introduced to bring to tax, benefits enjoyed by employees, which cannot be identified to a particular employee. This, of course, is subject to the exceptions provided in Section 115WB(1). In any case, these items are not treated as a perquisite and will, therefore, be treated as salary in the hands of employees. Hence, it will not be subject to FBT.

The fact that these will not be taxed in the hands of employees will not make a difference. It may be mentioned that in respect of reimbursement of medical expenses, the excess over Rs 15,000 will be taxed in the hands of employees and, therefore, will not be subject to FBT.

Query

If an expenditure is debited in the books as on March 31, but paid in the financial year 2005-06, will FBT be payable in respect of such expense?

Reply

If the expenditure is incurred and debited in the books in the financial year 2004-05, the fact that the same was actually paid only in the financial year 2005-06 cannot make the expense one that is subject to FBT. Though there is no express provision in this regard, it is felt that one will have to read this into the statute to make the legislation a fair one and so as to ensure that the desired result is achieved.

What are fringe benefits?

WILL expenses, which are not connected to the employees in any manner, such as the travel expenses of a consultant or auditors, come under Fringe Benefit Tax (FBT)?

Reply

FBT will only be attracted in a case where the expenses are wholly or partly related to the employees or former employees. If the expense is not connected to the employee, FBT will not be payable. Section 115WB(1), which defines fringe benefits, divides it into three categories:

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