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FBT ON MOTOR CARS

CA.Sachin Bajaj (Chartered Accountant) (138 Points)

10 May 2007

SIR/MADAM
I am running a business as a partnership concern of
providing Motor Cars as CABS to the companies which are used for the carriage of their employees.I have a seperate commercial number & 90% of firm's expenses are car running & maintainance including petrol.
Now I would like to know that whether the firm is liable to FBT. :)

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9 Replies

Anonymous (25 Points)
Replied 10 May 2007

come on guys please help me. :-/ :-/

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Mohan (25 Points)
Replied 10 May 2007

FBt is levied on car running and maintance expenditure as mentioned in Sec 115WB,
but ib this case as your business is of hiring the vehicles and that was not used for your own business so in my opinion FBT should not be there for better clarification you shuld reffer to case laws.

Kparameshwaran (19 Points)
Replied 10 May 2007

Dear Sir,
              First of all make sure that you hire "Motor Car" within the meaning of Income Tax Act. You have mentioned that you hire out motor cars as cabs. If you really hire out Motor Cabs or Maxi Cabs, there is no concept of FBT, as FBT is leviable only for Motor Car.

            The first thing to be understood is that the concept of FBT is not clear in terms of its basics. By going through the definitions and explanations by different authors, we come to a conclusion that FBT should be levied only for fringe benefits provided to the employees of the asseesse's organisation. But it is mentioned that FBT will also be levied at the rate of 5% for the running, repairs and maintainence expenditure of Motor Cars of the assessee engaged in the business of carrying Passengers or Goods through their Motor Cars.An Important Question arises here. What kind of Fringe Benefit has been passed to the employees by using motor car to carry Passengers and Goods? So, the concept is not clear. There is no base for the levy of the tax.

      But I don't think so that you will be covered in that 5% Category. Because you do not directly engage in the business of carrying Passengers. You do only hire out your vehicles. Also you do not pass out any Fringe Benefit to your employees by hiring out your Motor Car. So, by the fundamental definition of FBT, you are out of its scope. But, since the 5% Category lacks basics, it will not be a surprise if you are also brought under the purview of FBT.

      Finally, your issue is very debatable. Since the basis for levying FBT is not clear, we cannot clearly pinpoint that you will be liable to pay FBT. But going by the 5% Category(i.e. it has no logic for the levy of FBT) you may also end up paying FBT.

    Let us hope that the department or the next Finance Act brings up the basics clearly, by drafting a Clear Charging Section for FBT.Till then keep your fingers crossed.