Fringe Benefit Tax was introduced in 2005 to be charged on the value of certain benefits offered by employers to their employees.
However, it turned out that the amount of tax collected by the government was not enough and the pain caused to corporates by way of compliance and paperwork was enormous. Under the 2009-10 Budget, FBT has been abolished.
Announcing the decision of the government to do away with FBT, Finance Minister Pranab Mukherjee said in his Budget speech that "this tax has been perceived as imposing considerable compliance burden. Empathising with these sentiments, I propose to abolish the fringe benefit tax."
While the abolition of FBT is going to be received very favourably by the finance departments at companies, the impact on your personal finances might not be the most optimal for you.
The removal of the FBT means that perquisites will be taxed in the hands of employees at the marginal rate of tax applicable to them...we will have to await the valuation rules applicable to perquisites.
Here's some analysis to show you why.
As you will see in the table below, we have considered the case of an employee -- earning an annual CTC (cost to company) of Rs 750,000 -- under the current scenario and the proposed scenario. The annual fringe benefits offered to the employee are just under Rs 300,000.
Assuming that under both scenarios the taxpayer is using their full Rs 1 lakh (Rs 100,000) 80C deduction, the net annual taxable salary under the existing scenario is Rs 368,000 and under the proposed scenario is Rs 644,996.
You will see that under the existing scenario, the take-home salary (i.e., CTC less income tax and FBT on fringe benefits provided) is Rs 700,418 (93% of CTC) whereas under the proposed scenario it will be Rs 649,576 (87% of CTC).
As this highly stylised example demonstrates, your personal taxation might be worse off under the proposed rules.
|
|
EXISTING |
PROPOSED UNDER BUDGET | ||
|
ACTUAL (Rs.) |
TAXABLE |
ACTUAL (Rs.) |
TAXABLE | |
|
Basic Salary |
25,000 |
25,000 |
25,000 |
25,000 |
|
House Rent Allowance |
10,000 |
10,000 |
10,000 |
10,000 |
|
Special Allowance |
4,000 |
4,000 |
4,000 |
4,000 |
|
Fringe Benefits from Employer |
|
|
|
|
|
Club Membership |
4,000 |
- |
4,000 |
4,000 |
|
Tour and Travel Reimbursement |
5,000 |
- |
5,000 |
5,000 |
|
Hotel / Logding Reimbursement |
2,000 |
- |
2,000 |
2,000 |
|
Personal Conveyance Reimbursement |
10,000 |
- |
10,000 |
10,000 |
|
Gift Vouchers |
2,500 |
- |
2,500 |
2,083* |
|
Monthly CTC |
62,500 |
|
62,500 |
|
|
Annual CTC |
750,000 |
|
750,000 |
|
|
Taxable Salary Per Month |
|
39,000 |
|
62,083 |
|
Income Tax Computation | ||||
|
Total Annual Taxable Salary |
|
468,000 |
|
744,996 |
|
Less: 80C Deduction |
|
100,000 |
|
100,000 |
|
Net Taxable Salary |
|
368,000 |
|
644,996 |
|
Tax on Above (assuming applicable tax slabs) |
|
22,454 |
|
100,424 |
|
Take-home Salary | ||||
|
CTC |
|
750,000 |
|
750,000 |
|
Less: Deductions by payroll |
|
|
|
|
|
Income Tax |
|
22,454 |
|
100,424 |
|
FBT on Fringe Benefits Provided** |
|
27,128 |
|
|
|
Take-home salary |
|
700,418 |
|
649,576 |
|
Take-home pay as a percentage of CTC |
|
93% |
|
87% |
|
* Gifts up to Rs 5,000 P.A. is exempt. | ||||
|
** This is paid by the employer, but the charge is passed on to the employee | ||||
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