NEW DELHI: Bowing to the persistent demand by India Inc., Finance Minister P. Chidambaram on Tuesday significantly diluted the provisions of the so-called "traumatic" Fringe Benefit Tax (FBT), which was introduced last year as a revenue raising measure in the budget for the current fiscal.

While arguing against complete abolition of the tax on employers in view of its "horizontal and vertical" equity, Mr. Chidambaram chose to prescribe a threshold of Rs. 1 lakh so that only a contribution by an employer to an approved superannuation fund in excess of Rs. 1 lakh a year per employee would attract FBT.

Exemption up to Rs. 2 lakh

In effect, he explained that there can now be a tax-exempt contribution up to Rs. 2 lakh per year for the benefit of an employee as the other Rs. 1 lakh is already exempt from tax under Section 80C when deposited by an employee into a superannuation fund.

This softer provision, he said, would help employers to extend better perks and facilities including superannuation schemes and tour and travel to their employees with a lesser tax burden.

Changes proposed

Apart from this, Mr. Chidambaram also proposed changes by way of valuing the `tour and travel' benefit at five per cent instead of 20 per cent earlier.

Likewise, the value of the benefit in the form of `hospitality' and `use of hotel boarding and lodging facilities' in the case of airlines and shipping company employees would be at five per cent instead of the 20 per cent levied earlier.

However, free samples of medicines, medical equipment distributed to doctors and expenses incurred on brand ambassadors and celebrity endorsement have been excluded from the ambit of the FBT.

As for the Banking Cash Transaction Tax (BCTT), Mr. Chidambaram decided to continue with the levy for some more time till the database of the tax authorities is adequately expanded and computerised.

Defending the levy for the purpose of "black money trail," he cited the instance of one bank branch in Chandni Chowk in the capital where money laundering by certain people to the extent of Rs 1,500 crore was detected.

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