Adjustment of FBT paid in AY 2010-11

The CBDT issued a CIRCULAR NO. 2/2010. Dated 29/01/2010 stating that the first installment of FBT advance tax paid by tax payers for   the current financial year (relevant to     Assessment Year 2010-11) can be adjusted against the advance income-tax liability of the tax payer. Readers would be aware that the Finance Minister   abolished the Fringe Benefit Tax (FBT) in the earlier budget. The Budget was presented in July   2009 and was enacted later in August. However, the abolition of FBT was with effect from 1st April, 2009.

This resulted in a situation whereby many corporate tax payers paid the first installment of FBT Advance tax in June 2009 before the Budget was presented. There was no clarity for such tax payers about the status of the advance tax paid. Tax payers were left wondering how their first installment of FBT advance tax would be dealt with by the Govt. and whether the same would be refunded to them or whether it would be adjusted against any other tax liability for the year.

The Central Board of Direct Taxes has finally cleared the confusion and has issued a press   release on 29th January stating  that the firstinstallment of FBT advance tax paid by tax payers for the current financial year (relevant to Assessment Year 2010-11) can be adjusted  against the advance income-tax liability of the tax payer. Where this adjustment is not possible (for example in case of Liaison Offices where the entity does not need to pay any advance income-tax) or where, even after the adjustment, some amount of FBT advance tax still remains, the same would need to be claimed as a refund by filing the return of income.

Action points:

Those companies which have paid the first installment of FBT advance tax in June 2009 for A.Y. 2010-11 will need to reduce this amount from the last installment of advance income-tax that they have to pay by 15th March, 2010 and pay only the balance amount in March.

Those entities that do not pay income-tax in India or which do not need to pay any advance income-tax in March will have to file the return of income after 31st March and will need to claim a refund of the FBT advance tax. Presumably, the Govt. will amend the ITR forms suitably to enable tax payers to make such claims.

It would be advisable to confirm that the Govt.’s Online Tax Accounting System (OLTAS) shows the FBT advance tax as having been credited to one’s account in the Govt.’s records. This will facilitate smooth claim of credit for the tax payment made since, practically, when the returns of income are processed electronically, credit for taxes is given on the basis of electronic records of OLTAS.