FBT on Bank Intt for purchase of Car

This query is : Resolved

varun gupta (Querist)
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05 May 2009 A company got a CC limit with bank and purchases a car of that money and now pays interest on total withdrawn amount. No seperat intt is charged on amt used for car. Will this interest amt attract FBT or not?

CA Tilak Raj Sharma

CA Tilak Raj Sharma (Expert)
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05 May 2009 Yes, if you will post the interest on car separately in the books. However if you will show the account head as interest on CC then no FBT applicable.

CA. Aryendra

CA. Aryendra (Expert)
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05 May 2009 Interest on loans taken for purchase of cars falls within the scope of clause (H) of subsection (2) of section 115WB relating to repair, running and maintenance of motor cars. Accordingly, expenditure by way of interest on loans taken for purchase of cars is liable toFBT.

****For further clerification please read CIRCULAR NO 8/2005, DATED 29.08.2005***

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Ca Anand Dubey

Ca Anand Dubey (Expert)
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05 May 2009 yes,agreed

varun gupta

varun gupta (Querist)
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22 May 2009 But Loan has never been taken for purchase of Car. It is just a C.C limit against the stock & debtors of company and the Company has utilized some amt of this limit for purchasing the car. Then how can you say that Its loan for car and how can the FBT liability be attracted then?
Suppose, instead of paying via Bank Cheque, if the Co purchases it in Cash out of Proceeds from Debtors, even then the situation will be same but whether FBT would have been attracted in that case?

Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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24 July 2024 Under the previous Fringe Benefit Tax (FBT) regime in India (before it was abolished from 1st April 2009), the concept of fringe benefits included benefits provided by an employer to employees or others for non-business purposes. Interest paid on loans for specified purposes, including for purchasing assets like cars, could potentially attract FBT if it was deemed to be a fringe benefit provided by the employer.

Based on your scenario:

1. **Interest on CC Limit Used for Purchasing Car:**
- If the company used its Cash Credit (CC) limit from the bank to purchase a car, and the interest paid on the total withdrawn amount includes the portion used for purchasing the car, this interest could be considered as a fringe benefit under the FBT regime.
- The FBT liability would arise because the interest is not specifically attributed to the car purchase alone but is part of the overall CC limit utilization.

2. **Nature of the CC Limit:**
- Even though the CC limit is against stock and debtors and not specifically a loan for purchasing a car, the interest paid on the CC limit, which includes the portion used for purchasing the car, could still attract FBT.
- This is because the FBT regime considered interest paid on loans for acquiring assets (including cars) as a fringe benefit provided by the employer.

3. **Cash Purchase vs. Bank Payment:**
- If the company had purchased the car in cash from proceeds from debtors, without utilizing the CC limit, the interest aspect would not arise. However, the purchase of the car itself might have other tax implications, such as depreciation under income tax laws, but not under FBT.

In conclusion, under the historical FBT regime, interest paid on a CC limit used for purchasing a car could attract FBT if it was considered a fringe benefit provided by the employer. The key factor was whether the interest was related to a loan or facility used for acquiring assets, including cars. Since FBT has been abolished, these considerations are now historical and not applicable for current tax assessments.

For current tax implications related to interest payments on loans or CC limits, it's recommended to consult with a tax professional who can provide guidance based on the current provisions of the Income Tax Act and other applicable laws.