Fringe Benefit tax- A bitter pill

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: should not be charged for the shortfall in tax for the last quarter as it is paid on estimated basis . If the above provisions are seen it is very similar and replicate of the Income tax assessment except for few cases stated above.

When we are moving towards transparency in methodology of calculations and are implementing VAT wherein the core principle is that the same item should not be levied twice, the charging under Fringe benefit tax is totally against these principles. The fringe benefit tax is arbitrary and adhoc method of charging tax. Though perquisite valuation rules have been largely amended on introduction of FBT, there are still certain concessional benefits in the nature of educational, gas and water facilities and like benefits which are taxable as perquisites and again may be charged under FBT. With many perquisites outside the gambit of perquisite valuation rules, the employer will also plan in such a manner by giving more benefits as gifts, vouchers, reimbursement of benefits to the employees as the taxability under FBT is restricted to 50%/20% of the expenditure incurred which works out to 16.83%/6.73% and thereby reduce salaries. By this tax planning, the employee benefits as otherwise he has to pay at 30.60% which is the maximum tax slab for individuals and simultaneously the employer also gains as he can adjust the overall cost on account of FBT in providing of benefits which will be a win win situation for the employer and the employee.

The following are the list of perquisites outside the purview of the Perquisite valuation rules on account of Introduction of FBT:

a) Provisions relating to usage of motor vehicle

b) Benefit of traveling, accommodation of any employee or household borne or reimbursed by the employer for any holiday .

c) The value of free meals provided outside office

d) The value of gift, voucher, token given to employee

e) Membership and annual fees of credit card

f) Reimbursement of club fees

Let us take an example for illustrative purposes and how effective the provisions of FBT can be used as a tax planning tool.

The employer gives option to the employees for the following benefits and to the extent reduces the variable pay.