Unleashing fringe benefit for your benefit

At a time when most of the IT business community seems
confused about the issue of Fringe Benefit Tax (FBT) — New Delhi-based
solution provider association, Progressive Channels Association of Information
Technology (PCAIT) came

forward to organize a seminar on FBT in association with Philips.

As part of the event, Girish Ahuja, a leading tax
practitioner and author of Guide to Fringe Benefits Tax, talked about various
aspects of this tax and how the channel community should prepare to better
handle this tax. The event was attended by eminent channel players like RK
Malhotra, President, PCAIT; Ranjan Chopra from Team Computers; Alok Gupta from
Softmart solutions; Sanjay Sachdev from Leading Edge and several others as well.

What are fringe benefits?

With an objective of imposing tax at the hands of employers,
fringe benefits as outlined in section 115WB of the Finance Bill, means that any
privilege, service, facility or amenity deemed to have been provided by an
employer to his employees (including former employees) by reason of their
employment. 

An attentive audience absorbs the nitty-gritty of the fringe benefit tax

Keshav Madhav of Vidur and Co watches his peers religiously jotting down notes about the tax

RK Malhotra, President, PCAIT runs the partners through an introduction of the fringe benefit tax

Sanjay Maheshwari clarifies a query a partner has on the new taxation issues

N Satyan, National Corporate Manager, Philips India Interacting with Delhi-based partners

It also includes reimbursements made by the employer either
directly or indirectly to employees for any purpose, contributions by the
employer to an approved superannuation fund as well as any free or concessional
tickets provided by the employer for private journeys undertaken by employees or
their family members. 

Addressing a wide audience of over 60 leading solution
providers, distributors and PCAIT members of the region, Girish informed that
the channel community should seriously start thinking about facing this
challenge of FBT before it is too late for them.

"In simple terms, the taxation of perquisites or fringe
benefits provided by an employer to his employees is the fringe benefit tax.
This is in addition to the cash salary or wages paid to the employees. Any
benefits or perks that employees (current or past) get as a result of their
employment are to be taxed, but in this case the employer will be taxed. This
includes employee compensation other than the wages, tips, health insurance,
life insurance and pension plans," Girish explained. 

Who pays fringe benefit tax? 

Fringe benefit tax is payable by an employer who is either an
individual or a Hindu undivided family engaged in a business or profession; a
company; a firm; an association of persons or a body of individuals; a local
authority; a sole trader, or an artificial juridical person. 

The tax is payable in respect of the value of fringe benefits
provided or deemed to have been provided by an employer to his employees during
the previous year. The value of fringe benefits shall be the aggregate to the
cost incurred. That is, the total expense deducted will be considered for
purposes of levying fringe benefit tax. From this, a certain percentage will be
deducted. The difference therein will be taxed at the rate of 30%. 

However, the fringe benefit tax rate varies from 10% to 50%,
depending upon the expense incurred: For example, for the use of telephones 10%
fringe benefit tax will be charged, while entertainment expenses, festival
expenses, gifts, use of club facilities, will be taxed at the rate of 50%. 

How to play safe?

If the government has imposed a tax, we will have to pay it.
So thoughts of employers getting rid of all the employees and working only with
consultants is not advisable. It will not help their cause at all," Sanjay
explained.

Talking about genuine ways to face FBT, Girish added that
employers should have an 'Employees Food and Beverages Account'. "This
will not be included in the FBT, so I will urge employers to have this account.
Similarly employers should keep themselves away from the word 'conference'.
They should call it 'business convention', this way they will be keeping
themselves away from the FBT as far as these two segments are concerned,"
he suggested. 

He outlined some alternatives to saving on FBT. For instance,
employers should hire an outside agency to transport goods from one location to
another location. "You will have to pay FBT on account of the
transportation allowance reimbursed to your employee. So ideally, employers
should outsource transportation of goods to an outside agency. This way they can
save on this front," he informed.

How to file FBT?

An employer liable to pay fringe benefit tax is required to
furnish a return of fringe benefits before the due date as given in section
115WD. Section 115WE outlines the procedure for the assessment of the return of
fringe benefits filed by the employer and the determination of tax or interest
payable or
refund due and in either case the issue of intimation to that effect. 

There would be only one return and Fringe Benefit tax would
be filed along with the income tax. Hence, there would be no separate return for
the FBT. "As per the income tax, this tax should be calculated yearly and
quarterly. I would urge the reseller and the solution provider community not to
rush towards filing the full FBT now. They can file upto 60% of the total FBT
now and file the rest later on," Girish explained.

WHAT FRINGE BENEFIT TAX COVERS

As per the Finance Bill, fringe benefits shall be deemed to have been
provided, if the employer has incurred any expense or made any payment for the
purposes of:

• Entertainment
• Festival celebrations
•  Gifts
•  Use of club facilities
•  Employee welfare
•  Use of health club, sports and similar facilities
• Sales promotion, including publicity
•  Conveyance, tour and travel, including foreign travel expenses
•  Hotel boarding and lodging
•  Provision of hospitality of every kind to any person whether by
  way of food and beverage or in any other manner, excluding food or
  beverages provided to the employees in the office or factory
• Maintenance of guest house
• Conference
•  Repair, running and maintenance of motor cars
•  Consumption of fuel other than industrial fuel
•  Use of telephone
•  Scholarship to the children of the employees