Fringe Benefit Tax

Fringe Benefit Tax (FBT) :-

The rationale behind introducing FBt in India is to plug the loopholes in the present law and rationalisation of law. Most of the times, mainly in IT sector, the employer is spending lot of money on the employee which is included in the Cost to The Employer (CTC). Most of the times, there is a personal element involved in this expenditure. For example, a Comapny spends amount on an employee towards foreing or domestic travel, there is a fringe benefit to the employee.

In this regard, the Finance Act, 2005 has introduced Chapter XII-H to charge income tax on fringe benefits, which is known as Fringe Benefit Tax (FBT).This tax is applicable for and from the F.Y. 2005-06.

For the purpose of Income Tax Act, 1961, fringe benefit means

1. any privelege,service, facility or amenity, directly or indirectly provided by an employer.
2. any free or concessional ticket provided by the employer for private journeys of his employees or their family members and
3. any contribution by the employer to an approved superannuation fund for employees

Further, the expenditure for the following purposes shall be deemed as fringe benefit provided by the employer to the employee, whether or not the expenditure is for the purpose of deriving income, profits or gains

a) entertainment
b) provision of hospitality of every kind except food or beverages provided to the employees or non-transferable paid vouchers or coupons, which are usable only at eating joints or outlets.
c) conference other than the fee for particiaption by the employees in any conference
d) sales promotion including publicity except advertising in print or electronic media or transport system or expenditure on press conference or business convention, fair or exhibition or expenditure on sponsorship of any sport event or any other event organised by any Government agency or trade association or body or expenditure on legal publications in any print or electronic media or expenditure on advertisements by way of signs, art work, painting, banners, kiosks, hoardings, bill boards or any other such medium of advertisement etc.
e) employee's welfare
f) conveyance, tour and travel including foreign travel
g) use of hotel, boarding and lodging facilities
h) repair, running (including fuel), maintainance of motor cars and the depreciation thereon
i) repair, running (including fuel), maintainance of aircrafts and the depreciation thereon
j) use of telephone (including mobile phone) other than expenditure on leased telephone lines
k) maintenance of any accommodation in the nature of guest house other than accommodation used for training purposes
l) festival celebrations
m) use of health club and similar facilities
n) use of any other club facilities
o) gifts and
p) scholarships
q) tour and travel (including foreign travel ) (w.e.f. F.Y. 2006-07)


How the Fringe Benefit is calculated?

The fringe benefit is the aggregate of the following

1. In the case of concessional tickets, the amount spent by the employer
2. actual amount of contribution to the superannuation fund (From 01-04-2007, the amount of contribution exceeding one lkh rupees in respect of each employee)
3. 20% of the expenses referred to in (a) to (k) as above
4. 50% of the expenses referred to in (l) to (p) as above
5. 5% of the expenses reffered to in (q) (w.e.f. F.Y. 2006-07)

The above percentages are relaxed in certain sectors as under

1. For the hotel business, the rate is 5% in respect of the expenditure reffered to in (b) as above
2. For the business of carriage of passengers or goods by aircraft, the rate is 5% in respect of the expenditure reffered to in (b) as above
3. For the business of carriage of passengers or goods by ship, the rate is 5% in respect of the expenditure reffered to in (b) as above
4. For constrcution business, the rate is 5% in respect of the expenditure reffered to in (f) as above
5. For a manufacturer or producer of pharmaceuticals, the rate is 5% in respect of the expenditure reffered to in (f) and (g) as above
6. For a manufacturer or producer of computer software, the rate is 5% in respect of the expenditure reffered to in (f) and (g) as above
7. For the business of carriage of passengers or goods by aircraft, the rate is 5% in respect of the expenditure reffered to in (g) as above (w.e.f. F.Y. 2006-07)
8. For the business of carriage of passengers or goods by ship, the rate is 5% in respect of the expenditure reffered to in (g) as above (w.e.f. F.Y. 2006-07)
9. For the business of carriage of passengers or goods by motor car, the rate is 5% in respect of the expenditure reffered to in (h) as above
10. For the business of carriage of passengers or goods by aircraft, the rate is Nil in respect of the expenditure reffered to in (i) as above


What is the rate of tax for Fringe Benefit

The tax payable on the fringe benefits is 30% of the amount as arrived above.