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Fringe Benefit Tax: Exempted items

What are the items that are spared from the fringe benefit tax?

Concessions to employees by way of allotment of shares, debentures or warrants directly or indirectly under employees stock option plan or scheme are outside the purview of FBT. Expenditure incurred on an employee but recovered from him is an obvious item that is required to be left out.

The most welcome clarification is in respect of exclusion of contributions to approved gratuity fund or provident fund, (Q.38). This will be the greatest relief for taxpayers, whatever the reason given for excluding the same under Sec. 115WB(1).

Leave travel concession to the extent it is exempt under Sec. 10(5) of the Act will be liable for FBT (Q.44), but even such amount may not be liable, if it is included in salary making it a matter of accounting treatment, an unsatisfactory solution.

Transport allowance, children's education allowances, etc. covered by Rule 2BB read with Sec. 10(14) will not be liable for FBT (Q.47). This would again give immense relief to the employers, because these are items consciously exempted, though they are admittedly fringe benefits. The reasoning that these are not liable because these expenses would fall under the head "salary" is also an indication that wherever any payment falls under the head salary, there is no scope for liability for FBT. Such an inference stands to reason, because an amount falling under the head salary may well be taxable in the hands of an employee, unless it is specifically exempt under Sec. 10. The fact that it is exempt under Sec. 10 as a matter of State policy should not invite indirect liability for the employer as FBT. Availability of computer software service freely or concessional rate for information technology enabled services will not be liable for FBT. (Q.105).

How are matters relating to medical assistance treated?

Contribution to group personal accident or workmen compensation insurance will not be liable for FBT only to the extent there is statutory obligation. Same is the position as regards contribution to health insurance or medical insurance (Q.68, 70). Since medical reimbursement falls under salary, it is not liable to FBT, subject to the rider that to the extent it is not taxable in the hands of the employees (Q.69), a confusing inference which is self-contradictory in the light of similar other payment to employees falling under the head salary. So is the expenditure on medical treatment for injury suffered during the course of performance of duties, but not at the hospital or dispensary not maintained by the employer treated as liable for FBT (Q.71).

What are the items relating to employees which are vulnerable?

While non-transferable food vouchers meant for employees will not attract liability for FBT (Q.52), even expenditure on food, beverages, tour, travel and lodging and provisions for any in-house training of employees (Q.51) and expenses incurred on training at places other than office or factory or temporarily hired premises will be liable under Sec. 115WB(2)(B)(i) (Q.50). Course fee for seminars and workshops would not be liable for FBT, but other expenses incurred on training and conference will be liable under Sec. 115WB(2)(C) (Q.54, 55). Even expenses on conference for agents and dealers will be so liable. (Q.56).

What are the other items treated as employee benefits liable for FBT?

Subsidies to nearby schools and hospitals which give preferential admission to employees is a deductible expense, but will be liable for FBT (Q.72), unless the school is exclusively for employees' children (Q.72). Provision of facilities such as garden, site cleaning, light decorations, school library, mess, TV, and cable connection will fall under Sec. 115WB(2)(E) and will be liable for FBT, but not safety devices, uniforms or washing charges and equipments which are statutorily required to be provided. (Q.74). Provision of books and periodicals, offer of prizes and rewards for performance/ achievement, benefits for employees children are all liable for FBT under Sec. 115WB(2)(E). (Q.75, 76, 77).

Expenses reimbursed by way of petrol bills and driver's salary, even on declaration of use for office purposes, will be liable on the ground that if it is for official use, it will not fall under the head salary, but all the same, liable for FBT under Sec. 115WB(2)(F) (Q.78). Per diem allowance for meeting lodging and boarding expenses even on actual basis will be liable for FBT under Sec. 115WB(2)(G). But employees will not be liable even on the surplus, if any (Q.79).

Reimbursement of motor car expenses, running expenses, car rental, depreciation on company's car, driver's salary, garage rent and parking charges will all be liable, while the employee will not be liable. (Q.81,82,83).

Even interest incurred on finance for purchase of vehicles will be treated as car expenses and liable for FBT (Q.84) involving considerable effort to identify such amount.

Telephone expenses irrespective of where it is installed in the office or residence will be liable for FBT under Sec. 115WB(2)(J) unless it is a leased line (Q.90). Acquisition of fridges and TV sets in a guest house will not be liable for FBT, because capital expenditure is outside the scope of FBT (Q.89, 91). But rent for hiring guest house and maintaining it will be liable for FBT, holiday homes not being excepted, unless it is accommodation exclusively used for training programmes (Q.92 & 93). Provision for food at the guesthouse (Q.94) but not depreciation on guesthouse will be liable. (Q.94).

Festival expenditure for employees as for Navaratri will be liable for FBT under Sec. 115WB(2)(L), but mercifully celebration of Independence Day is excluded, because it is not a festival (Q.95). Club fees, whether entrance or regular membership, including health club will be liable for FBT (Q.96).

Gifts presented to employees on occasion of marriage (Q.99) and other gifts in kind are liable under Sec. 115WB(2)(O). Expenses on education of employees and scholarships granted to employees for pursuing education will be liable for FBT under Sec. 115WB(2)(P) (Q.101, 102).

(To be concluded)

S. RAJARATNAM

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