27 March 2008
Firtly it should be noted that FBT is applicable to Partnership Firm, Comany & Trust only. FBT means Fringe Benefit Tax. There are some expenses on the part of employer and income at the part of employee which are not taxed. It means Employer is getting expense as allowable deduction from Business Income and hence it pays less tax And on part of employee its not taxable. As an example conveyance, tours, telephone etc. Hence FBT is charged on such expence. Firstly Value of FBT is found out. There are different rates for finding Value of FBT. But after NET Value of FBT 30 % Tax+Cess is to be paid.
According to P. Chidambaram's announcement in the Lok Sabha, a FBT of 30% will be levied on 20% of the fringe benefit expense. In simpler terms, FBT will work out to be 6% of the total amount.
But in end, the effective FBT turned out to be just 2% for regular companies and 0.5% for special-category companies like IT and pharmaceuticals. What's more, India Inc can avoid paying even this minuscule amount of tax if their auditors certify an expense as a genuine business expenditure.
According to industry sources, there will be 1.5 to 2% additional tax burden to companies due to items covered under FBT account for about 10-15% of total corporate profits.
Taxable or Exempted items under Fringe Benefit Tax (FBT)
Taxable Exempted Use of telephones, including mobile phones, the base for valuation will be 20% Expenses on advertising The base for valuation of FBT will be 20% for expenses on entertainment, hospitality, sales promotion and publicity, employee welfare, conveyance, tour and travel (including foreign travel) and use of hotels. Expenses on leased lines will. 50% for expenses on festival celebrations, use of clubs, scholarships and so on. Charitable institutions, trusts and funds. For superannuation funds, FBT will be levied on the entire contribution made by the employer for employees. Individuals and Hindu Undivided Families (HUFs) engaged in a business or profession. Tax on foreign tour and travel. Infosys, for instance, spend about 4% of its revenues on foreign travel. Phone bills account for close to 1%, another expense attracting the fringe benefit tax. Conference expenses, only the fee for participation Repairs and maintenance of cars have also been brought under the purview of fringe benefit tax now. The only saving grace is that only 5% of maintenance costs for transport companies will now be subject to FBT. Employee welfare expense, only the expenses incurred to fulfil any statutory obligation or to mitigate hazards or to provide first aid facility that too only in a hospital or dispensary run by the employer. Any privilege, service or amenity provided directly or indirectly by an employer by way of reimbursement or otherwise to employees will attract FBT, which is to be paid by employers. Guest houses for training. Fifty per cent of expenses on club facilities. Expenses incurred due to sales promotions Expenses borne by companies on foreign travel of their employees will be under the purview of FBT. FBT on travel expenses has been cut to 5%. Medical expenses. Any free or concessional ticket provided by the employer for private journeys of employees or their family members and any contribution to an approved superannuation fund for employees will come under the purview of FBT. Companies that are loss making. Expenditure on employees welfare will attract FBT, but not the expenditure incurred or payment made to fulfil any statutory obligation or mitigate occupational hazard or provide first aid facilities in hospital or dispensary run by employers. Other expenditures that will come under FBT are conveyance, tour and travel including foreign travel, use of hotel, boarding and lodging facilities, repair, running, maintenance of motor cars and aircraft and the amount depreciation on them. Maintenance of any accommodation like guest house except those used for training purposes, festival celebrations, use of health club and similar facilities, use of any other club facilities, gifts and scholarships will come under FBT.
% of expense under the fringe benefit tax
Earlier Now Use of telephone (other than leased lines) 10% 20% Entertainment 50% 20% Scholarship to children of employees Actual 50% Hospitality 50% 20% Maintenance of accommodation like guest houses 50% 20% Conference 50% 20% Employee welfare 50% 20% Sales promotion, including publicity 50% 20% Festival celebration 50% 50% Gifts 50% 50% Use of club facilities 50% 50% Use of health clubs, sports and similar facilities 50% 50% Conveyance, tour and travel, including foreign travel 20% 20% Hotel, boarding and lodging 20% 20% Repair, running (including fuel), maintenance of motorcars and depreciation thereon 20% 20% Repair, running (including fuel), maintenance of aircraft and depreciation thereon 20% 20%
Tax of 30% will be levied on the value of the fringe benefit calculated at the above rates PLUS DDU.CESS source:finance.indiamart.com R.V.RAO
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